When it comes to mergers and acquisitions, many small and medium sized companies shy away. The financial risks associated with such a strategy can be intimidating. Likewise, it is not always clear how a company might enjoy growth through acquisition within a specific market. Without question, mergers and acquisitions are not always ideal for all businesses. Performing due diligence and having an understanding of the growth potential of these actions are important. But in the right situation, mergers and acquisitions offer excellent ways to increase value propositions. It is important for companies to appreciate this in order to succeed in the marketplace.
There are many examples of both successes and failures when it comes to mergers and acquisitions. Likewise, there are a number of advantages that such activities may offer as well as a few important risks. Certainly, financial growth through acquisitions can be tempting. But examining financial growth alone can often cause a short-sighted perspective that leads to undesirable outcomes. With this in mind, exploring the types of opportunities that are ideal for these pursuits can be helpful. Today, companies are even using AI to assist with these assessments. (Read more about leveraging artificial intelligence for mergers & acquisitions in this Bold story.) With such insights, companies can make better decisions regarding possible growth solutions.
Leveraging Mergers and Acquisitions for Sustained Growth
In 2005, there was a relatively unknown mobile startup company called Android. It is estimated that Google purchased the company for $50 million. Overall, this was a relatively small purchase price when comparing it to other companies Google acquired that year. However, the acquisition of Android enabled Google to compete with apple and Microsoft in the advancing mobile device market. Notably, Google’s growth through acquisition of Android in this area has been profound. Android now occupies the majority share of the smartphone platform market.
The purchase of Android is a great example of how mergers and acquisitions offer strategic growth opportunity. Certainly, financial growth opportunities can occur with these activities. Some acquisitions offer investment opportunities while others boost cash flows. But the real potential for growth through acquisition involves the enhanced offerings provided. Depending on a specific situation, mergers and acquisitions can increase a company’s competitive advantage within their marketplace. The following include some of the most important ways growth through acquisition can benefit a particular business.
- Provide Opportunities to Gain Larger Market Share – mergers and acquisitions can often help businesses attain a larger portion of their market. With the proper due diligence, such opportunities can be explored to determine the impact this might have.
- Provide Opportunities to Enter New Markets – In addition to expanding markets, growth through acquisition can also allow businesses to enter new markets. This was the case with Android and Google. This can be quite useful when businesses need to fill specific gaps in their product or service offerings.
- Provide Opportunities for Horizontal Integration – Mergers and acquisitions also allow companies to participate in horizontal integrations and expansions. This often involves adding complementary products and services to existing offerings. If done well, such a strategy can also increase market presence and brand recognition.
- Provide Opportunities for Diversification – For some companies, growth through acquisition might occur through greater product or service diversification. This may not always be ideal for all businesses. But if it aligns with a particular business strategy, mergers and acquisition may be a great way to achieve this.
- Provide Opportunities for Economies and Efficiencies of Scale – Notably, companies are often looking for ways to reduce costs or to increase efficiencies. Strategic mergers and acquisitions can often help achieve these targets. As a result, companies can become more competitive within their marketplace while also enjoying growth through acquisition.
- Reduce Time Required for Organic Growth – all companies should focus on organic growth strategies. But growth through acquisition can often compliment these strategies and help realize them more efficiently and faster. This is particularly true when learning curves are extended or complicated as companies grow in new directions. In such instances, mergers and acquisitions might offer better solutions.
- Provide Opportunities to Secure Key Talent – In certain industries, finding expertise and talent can be difficult. In other sectors, regulatory barriers and access to intellectual properties may be challenging. In these types of circumstances, mergers and acquisitions can also provide effective solutions. This too offers significant potential for growth through acquisition and select situations.
Understanding When Not to Pursue Mergers and Acquisitions
Of course, mergers and acquisitions are not always the right solution for every situation or every company. The potential for growth through acquisition must be weighed against the potential risks and setbacks. If a merger or acquisition causes destabilization of a company, this could be counterproductive to strategic goals. This most commonly occurs when there is a culture clash between the parent company and the acquisition. Other potential risks include the dilution of brand strength that might occur with a specific merger or acquisition. And of course, these types of activities can be distracting causing leadership to lose focus on key business goals.
Understanding this, it is important to explore mergers and acquisitions in detail before moving forward. In many instances, small and medium sized companies lack the experience and/or time to commit to these activities. In these circumstances, seeking professional guidance can be a great help in making sure the right choices are made. Not only can this help in avoiding unwise mergers and acquisitions. But it can also help businesses take full advantage of the opportunities presented. Without question, there is great potential for growth through acquisition. But it’s critical these pursuits be thoroughly assessed before committing valuable resources to the effort.
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