Have you ever wondered what Mergers and Acquisitions are? According to Investopedia, M & A is a general term that describes the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.
A company may merge with another one to create a new company, stage a takeover, buy and absorb another company, or acquire some major assets from a company. All these are types of M & A.
The terms “Merger” and “Acquisitions” are used interchangeably, but they are quite different. ‘’Merger’’ means the amalgamation of two different companies to form one legal entity with a corporate name. ‘’Acquisitions’’ means that one company is outrightly buying another company.
Now that we are acquainted with what an M & A is, let’s explore its benefits;
- Synergies: There is great value in working together to achieve something great for a company. This is the case for companies that are merged or acquired.
- Increased Market Share: One of the top reasons companies undertake M & A is to increase market share. Ever noticed that there is a high level of consolidation in retail marketing? According to Investopedia, consolidation creates a new company by combining core businesses and abandoning the old corporate structures. Stockholders of both companies must approve the consolidation, and after the approval, receive common equity shares in the new firm.
For example, in 2019, Access bank and Diamond bank announced a consolidation, which resulted in Access bank. The logo was also rebranded to reflect both brands.
- Higher Levels of Competition: As your company grows, it becomes more competitive, allowing you to compete for more. For example, DSTV created GOtv to compete with smaller brands like StarTimes, making it quite a challenge for StarTimes to compete with the Multichoice giant.
- Access to Talent: Bigger organisations have access to the best talents. E.g., in the world of technology, you hear things like “coding/IT is where the money is”. Top companies around the world have a pool of the best coders/IT specialists.
- Risk diversification: When a company has multiple streams of income, the risk is shared amongst these companies. For instance, Facebook acquired Instagram and WhatsApp, which has the younger generation as its target audience. The younger generation has shifted their focus from apps like Facebook to WhatsApp, Instagram, and the like. This goes to show that when one stream of income stops attracting a certain audience, another stream would.
Conclusion
There are numerous benefits to Mergers and Acquisitions. The listed benefits above are just a few of them. Before putting up an M & A strategy, consider the benefits that you are trying to achieve before you invest money, time, and effort.
