Mergers and Acquisitions are similar but have a few major differences.
Mergers combine two separate businesses into a single new legal entity. True mergers are uncommon because it’s rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs.
Unlike mergers, acquisitions do not result in the formation of a new company. Instead, the purchased company gets fully absorbed by the acquiring company. Sometimes this means the acquired company gets liquidated. Acquiring a business is similar to buying an existing business or franchise.
Calculate how much the other business is worth
Conduct a business valuation to determine the value of the other business before you agree to a sale. This is essentially the same process you’d go through to figure out how much your own business is worth before closing or selling your business.
There are several ways to value a business, so do extensive research on methods if you choose to do it on your own. You might want to hire a qualified business appraiser. Once you know how much the other business is worth, you’ll know whether you can afford it outright or if you need to get more funding.
Transfer business ownership
The terms of your agreement will dictate which steps you must take to transfer ownership, and what that ownership will look like. It’s widely recommended to have an attorney help with this step.
After you’ve completed the acquisition or merger, you’ll need to register these changes with the state, depending on state law and business structure.
If the merger requires you to dissolve your original company and create a new one, you might also need to open new business bank accounts, get new state and federal tax IDs, re-apply for licenses and permits, and take steps to legally close your old business.
Negotiate important details
Some of the key points that impact the terms of a business deal include:
Projected or actual growth
Prices paid for shares of the company
What type of buyer you are dealing with (private equity firm vs. strategic buyer)
Most recent fair market valuation
Business sector of the company
Any proprietary technology or information held by the company
Potential legal, financial or business risks of the company
Mergers and Acquisitions Benefits
1. Economies of Scale
Phronesis Group Consulting is the solutions to Mergers and Acquisitions because the end goal of a merger and acquisition is to realize economic gains and economies of scale. This becomes possible when the two firms involved in the merger and acquisition are stronger, more productive, and more efficient together than apart. Businesses consolidate to reap benefits like increased access to capital, better bargaining power in the market, lower costs resulting from high volume production, and more.
2. Economies of Scope
Phronesis Group Consulting is the Solutions for your Mergers and acquisitions benefits include economy of scope, which refers to the reduction in production cost of one product due to the production of another related product. In other words, one product supports another to reduce the overall costs. Economies of scope typically occur when producing more products is more feasible and economical than making a single or fewer products. Mergers and acquisitions can sometimes lead to economies of scope that may be impossible to achieve through organic growth.
3. Competitive Edge in the Market
Phronesis Group Consulting is the key for Mergers and acquisitions mean greater financial strength for both companies involved in the transaction. Having greater economic power can lead to higher market share, more influence over customers, and reduced competitive threat.
4. Access to the Best Talent
Phronesis Group Consulting is the vital force for Talent acquisition is one of the biggest concerns for companies that wish to excel in the market. The recruitment industry knows that talented employees are attracted to big names. Consequently, the bigger the company, the better access it enjoys to the best available talent.
5. Access to Resources
Businesses in the same sector can sometimes improve access to materials, suppliers, and tangible resources through acquisition. For example, one business may acquire or merge with one of its suppliers to improve production cycles and guarantee access to critical materials.
6. Diversification of Risk through Portfolio Divergence
Phronesis Group Consulting is driver for Mergers and acquisitions allowing companies to spread risk across different revenue streams by the diversification of the products, services, and prospects for the business. If one revenue stream falls short, the business will still have several other income streams to fall back on and continue operation. By diversification of risk, the company can ensure sustainability for the long run.
7. Cost-Effective Alternatives for Facilities
Phronesis Group Consulting is the leader in Mergers and acquisitions present a cost-effective alternative to starting from scratch. Setting up production centers, buying machinery and equipment, building storage places, and initiating distribution channels are costly. It is more cost-effective to merge with another company already equipped with the facilities you require.
8. Access to New Markets
Phronesis Group Consulting the driver for Breaking into a new market can be challenging, even for established businesses. While setting up a subsidiary or branch is always an option, a merger or acquisition can save companies a significant amount of time, effort, and money compared to starting from scratch.
. Therefore, it is more feasible for most companies to merge with or acquire an established local business that already has a loyal customer base.
9. Opportunist Value Generation
Phronesis Group Consulting is supporting the Larger organizations are often on the lookout for acquisition opportunities where the purchase price is valued at less than the fair market value of the target’s net assets. Such financial positioning indicates that the target company is experiencing financial distress.
10 Business Continuation
A merger or acquisition is one strategy to help ensure business continuity, reduce interruptions in the operation, and provide job security for employees.
Merger and acquisition benefits are clear. However, to sustain the positive benefits of any acquisition or merger pursuit, businesses need to implement the right mergers and acquisitions strategy crafted to meet the company’s unique circumstances and goals. It is also essential to ensure a successful post-merger integration, which is fundamental to capturing synergies, profitable growth, and deal valuation.