What is Strategic M&A?
Strategic M&A refers to the strategy of a company acquiring another company or business entity in order to strategically grow their own business. With the goal to increase profits, most forms of strategic management are looking for an opportunity that will improve operations and make money. Managing this type of acquisition can be challenging, but with the right planning, careful acquisition research and professional execution, any form of Strategic M&A can be effective for its purpose.
How do you know if your company should acquire a company?
There are many methods companies use to decide on whether or not they should acquire another organization. One of the easiest methods to decide on if you should pursue a potential acquisition is to ask yourself the following questions:
1) Can your organization do any better than your competition? This question is designed to see if you have room for growth. Do you not have enough employees or resources to keep up with your competitors? You need to do research on your market, and find out what other companies are offering. Then, decide how much better you can do in order to survive.
2) Is there another company that offers something that would be beneficial for your business? If so, it would be easier for you to acquire them than trying to create what they already have on their own.
3) How will the new company fit into your organization’s current goals? If this company does not fit into your vision for growing your company, then it would be a bad choice to merge with them because you might have to change the way you do business.
4) How much is this acquisition going to cost and what is the potential return on investment? To find out, get estimates from an accounting and human resource agency to see if the expense will be worth it in the long run.
What factors should you consider when researching potential acquisitions?
When performing research on a new acquisition, there are many factors that should be considered. By taking these factors into account, it is easier to make an informed decision on whether or not you should pursue this opportunity. Following are the major factors that should be considered when researching potential acquisitions:
1) Does the company have any legal issues that you need to know about? This is one of the most important factors because if your business is acquired by another organization with certain legal issues that can cause problems for your business, this can create trouble. You will want to investigate in order to find out if there are any possible threats to your organization’s reputation or finances.
2) What is the target company worth? Is the asking price fair? By using a valuation analysis, it is easy to determine if this company is worth your investment or not. You should also factor in whether or not your organization will grow with this acquisition. Sometimes, it might be best to merge with another company instead of purchasing them because a merger will preserve some of the value for both companies. This can save money in the long run if you are looking for an even more cost-effective opportunity.
3) What is going on with your competition? If they are acquiring other companies to try and get ahead of you, then maybe you should do the same thing. If you are doing this, it is important to research why other companies are doing it to make sure that this decision is the best for your organization. You should also see if the other companies that they have acquired may provide you with technology or services that can help your company grow.
4) Can you actually benefit from the acquisition? Are there any additional benefits from owning the target company? If it does not benefit you then it would probably be a bad choice for your organization to acquire them.
Forms of Strategic M&A
There are many different forms of strategic M&A and each one has its own set of rules. The three main types of strategic M&A are:
1) Mergers – This is the most common form of strategic M&A. In a merger, two companies come together to form one company. The company that is acquired must sign an agreement with the company that is acquiring it. This agreement states what each party will do and how they will handle certain issues related to the business transaction.
2) Acquisitions – An acquisition means that one organization purchases another organization, then become its new owner or parent company. In this form of strategic M&A, only one organization purchases power is passed over to the new business entity by purchasing control or most of its assets.
3) Joint Ventures – A joint venture is very similar to a partnership. This type of partnership is different because it involves two organizations entering into a legal agreement where both organizations share ownership, resources and profits. This type of decision must be made carefully because both parties have to mutually agree on the terms in order for this agreement to be successful.
Takeaways:
1) Be sure that your organization has enough money, staff and resources to compete with other businesses in your market if you want to do further acquisitions or if you want to grow your company in general.
2) Research other companies that might be a good fit for your company by using key question to determine if this is a good idea.
3) Some acquisitions have higher risk than others, so be sure you have thought it through carefully before making any decisions.
Conclusion
In conclusion, strategic M&A can make a big impact on your business in terms of growth and profitability. It can allow you to survive and expand your company’s infrastructure if you want it to grow or increase profits. By acquiring new employees or technology, you can change the way things are done within your organization.
