Strategic planning is essential before mergers and acquisitions.
Mergers and acquisitions are operations carried out to modify the ownership of companies . Through these transactions, companies reduce or increase their size.
It is interesting to mention that the concept of mergers and acquisitions, also mentioned as M&A by the English expression mergers and acquisitions , can refer to the activity that, in the world of business and finance, consists of carrying out or promoting these procedures.
What are mergers and acquisitions
Mergers and acquisitions are transactions that change the ownership and structure of organizations . It is often said that they are part of the business strategy since they generate a new panorama in terms of competitiveness and market participation.
It cannot be ignored that mergers and acquisitions also represent an investment decision. When two firms merge or one acquires another, there are people who allocate money to the operation with the intention of obtaining, in the future, the recovery of said funds plus a profit.
An investor hopes, with his participation in M&A, to contribute to the creation of value for shareholders. If this does not happen, it is usually indicated that the transaction was unsuccessful.
Differences between both operations
Although they are usually named together, mergers and acquisitions are not the same. A merger occurs when two or more companies join together to create a larger entity.
Typically, mergers take place between companies in the same sector: two technology organizations are more likely to merge than a food company and a metallurgical company, to mention one possibility. This type of union aims to increase market share or strengthen the position to resist or overcome a crisis.
An acquisition , on the other hand, occurs if one company is bought by another. Gaining competitiveness , minimizing subsistence risks and achieving business diversification are some of the objectives of this type of transaction.
Anyone who participates in mergers and acquisitions seeks a return on investment.
Types of mergers and acquisitions
There are different types of mergers and acquisitions. Mergers by absorption , for example, are developed when a company buys and integrates the businesses of other entities, contributing a percentage of their capital , generating a new company but being able to maintain the independent existence of each one.
The pure merger , meanwhile, causes the birth of a new company from the union of two or more corporations that cease to exist. Another possibility is a merger with partial contribution to the assets , where the absorbed organization changes its legal identity and the absorbing organization retains it.
With regard to acquisitions, the operation known as management buyout is carried out by current directors of the company, who can count on the support of investors to finance the acquisition. Management buy-in , on the other hand, is carried out by external buyers who assume management.
The leveraged employee buyout type acquisition is carried out by the firm's workers with external financing, while the leveraged buyout operation is a leveraged purchase that is financed with the organization's assets as collateral.
Advantages and disadvantages
Analysts recognize advantages and disadvantages of mergers and acquisitions. Among the favorable aspects, the best positioning to face competition , cost reduction and higher performance thanks to synergies stand out.
If the growth strategy works, the change in control of the company can contribute to the consolidation of the industry and a more efficient organization of the company.
At the other extreme, when mergers and acquisitions arise from a wrong prior analysis or an unforeseen change in conditions occurs, there may be organizational culture conflicts , clashes between management teams or financial problems for the parent company.
Mergers and acquisitions have tax implications.
Advice on mergers and acquisitions
Advice on mergers and acquisitions is a professional service provided by banks and financial institutions. This service aims to resolve corporate problems through M&A proposals that make it possible to generate value for shareholders.
Thus, those who advise in this field first analyze what the company's needs are and then work together with managers to design a strategy . This can include multiple actions, from processes aimed at achieving a share reorganization or corporate restructuring to the search for financial resources or the diversification of activities, always through mergers and acquisitions.
In a simplified way, it can be said that an M&A advisor helps define which businesses a company would find convenient to acquire or how it could access capital for financing. Likewise, the specialist can carry out a company valuation and indicate who might be interested in an acquisition.
It cannot be omitted to mention that, beyond the potential and particular needs, the economic context affects mergers and acquisitions. According to the World M&A Survey developed by KPMG in June 2023, for example, Mexico was at that time the most attractive country in Latin America to carry out these operations.