Mergers & Acquisitions (M&A)

M&A definition

“M&A”, or “Mergers and Acquisitions,” is a specialty in business, law, finance, and accounting that deals with the intricate process of combining two or more business entities into a single corporate entity or the purchase of one company by another. The term ‘M&A’ can also denote the transactions themselves. In mergers, the companies are combined. In acquisitions, one company buys another.

Understanding M&A (mergers and acquisitions)

Both public and private companies may initiate M&A, typically to fulfill strategic goals. Mergers and acquisitions or M&A, are crucial strategies that businesses employ to achieve specific objectives. Some examples include:

  • Expanding market share for products or services
  • Increasing efficiency
  • Entering new markets
  • Combining technologies or resources
  • Gaining access to new talent and expertise

Companies generally do not approach M&A transactions lightly. These complex business operations often involve notable financial and legal commitments that can extend over a prolonged timeframe, sometimes years. Particularly vast M&A deals may necessitate additional governmental and legal supervision.

M&A strategies—types of mergers and acquisitions

An M&A strategy defines the purpose behind the deal, aligning with the key strategic initiatives that the company hopes to accomplish. For instance:

  1. Horizontal merger: when companies operating in the same industry merge or acquire each other. The goal may be to increase market share or benefit from economies of scale. 
  2. Vertical merger: when the merging or acquiring companies occupy different stages of the supply chain. For example, a large manufacturer may acquire a company that supplies raw materials to have better control over the inputs of its production line.
  3. Market extension: when the merging or acquiring companies gain access to new markets. This is particularly useful when a company wants to expand internationally.
  4. Product extension: when merging or acquiring companies can expand their product offerings. This strategy allows companies to leverage synergies between complementary products and reach a wider customer base. 
  5. Diversification: when the companies operate in different industries. Each company reduces its overall risk by entering new markets and relying on multiple revenue streams. 
  6. Financial restructuring: when merging or acquiring companies seek to improve financial performance or leverage untapped value. This could involve combining operations to reduce costs, for example, or restructuring debt to improve liquidity. Companies may also pursue these deals to gain access to capital or strategic investors.
  7. Talent acquisition: when the companies will gain access to skilled employees or expertise in a specific field, expanding their workforce and enhancing their capabilities. 

Devising a successful M&A strategy

Undeniably, M&A activities can offer numerous advantages such as market growth, product variety, cost reductions, and talent acquisition. To successfully achieve these goals, businesses must thoroughly analyze possible synergies, cultural fit, and regulatory implications before pursuing any merger or acquisition.

By considering the key components listed below, businesses can develop a comprehensive and effective M&A strategy that aligns with their goals and maximizes the chances of a successful merger or acquisition.

Key components of an M&A strategy

  1. Clear objectives: The most important aspect of an M&A strategy is to “know your why.” This includes understanding why the merger or acquisition is being pursued, what the desired outcome is, and how it aligns with the company’s overall business strategy. This becomes the “north star” for the company, guiding decisions and objectives through every step of the deal.
  2. Target identification: The next step is to identify potential targets that align with the objectives. For example, if the objective is to move into Asian markets, the company will consider and investigate companies that have sales and distribution networks in these markets. Target identification involves thorough research and analysis to identify companies that have complementary products, services, or market presence.
  3. Due diligence: Due diligence is a step of the actual M&A process, but it also needs to be a part of the M&A strategy. When analyzing the target company, what benchmarks will the due diligence team look for? What are the markers of financial health and market share that the team wants to see? What potential risks should raise red flags? Creating a due diligence strategy helps to ensure that the deal will be a good fit while minimizing any surprises or hidden issues.
  4. Integration planning: At a strategic level, integration planning involves identifying key synergies or issues that the team should look for when considering the practicality of merging the two companies’ operations, employees, and cultures.
  5. Regulatory and legal considerations: Mergers and acquisitions often involve complex regulatory and legal considerations. Engaging legal and regulatory experts early in the process, during the strategy stage, can help identify key issues to consider when vetting target companies.
  6. 6. Communication and stakeholder management: Having a plan for effective communication and stakeholder management is critical to a successful M&A strategy. This includes communicating the rationale for the deal to employees, customers, suppliers, and other stakeholders. It is important to address any concerns or uncertainties and involve key stakeholders in the integration planning process to ensure a smooth transition.

M&A process

Successfully completing, or closing, an M&A business deal involves several steps, each of which is approached as a separate phase of the process. In a relatively quick M&A deal, each phase may take three to four weeks to complete, but it is not unusual for these phases to last for several months—or longer.

Phases of the M&A process

  1. Strategic planning and target identification: This is the strategic phase outlined above, determining the “north star” purpose of the deal as well as the key benchmarks that the M&A team will consider during each phase of the actual process.
  2. Due diligence: Once a potential target company has been identified, a thorough due diligence process is conducted to assess the financial, legal, operational, and cultural aspects of the target company. If the team discovers significant red flags, they may decide not to move forward.
  3. Valuation and negotiation: In this phase, the acquiring company determines the value of the target company and engages in negotiations with the target company’s management or owners regarding the terms of the deal, including the price, payment structure, and any contingencies. Valuing a company is not a simple process—in fact, it is often a hotly contested aspect of the negotiation. It includes a company’s cash position, future cash flows, intellectual property, joint ventures and other contractual obligations, real estate holdings, market power, innovative products and developments, pending asset purchases, short-and long-term debt, and more.
  4. Definitive agreement: Once the terms of the transaction have been agreed upon, a definitive agreement is drafted that includes the final terms and conditions of the acquisition. This agreement is typically reviewed and approved by both parties’ legal and financial advisors.
  5. Regulatory and legal approvals: Before the acquisition can proceed, it is necessary to obtain any required regulatory approvals, such as antitrust or competition clearances. The definitive agreement is also finalized and signed by both parties during this phase.
  6. Integration planning: This phase involves developing a detailed integration plan that outlines how the acquiring company will integrate the target company’s operations, employees, systems, and culture. 
  7. Closing: Once all regulatory approvals and legal requirements have been met, the acquisition is finalized through a closing process. The acquiring company takes ownership of the target company and initiates the integration plan to combine the two entities and achieve the desired synergies and value creation.
  8. Post-merger integration: Once the deal closes, the focus shifts to managing the post-merger integration process. On paper, the process of turning two separate entities into one legal entity is complete. However, the real-world process of merging operations and cultures is only just beginning—this can be a long, messy process, especially when combining larger companies.

Initiation, execution, and post-merger integration

Throughout the process of initiation, execution, and post-merger integration, the M&A team must keep its “north-star why” firmly in mind. Whether the purpose of the deal is to add new product lines or acquire new talent, successful integration means getting everyone on board with the new direction, including the hundreds or thousands of employees that make up the new company.

M&A trends

M&A trends refer to the current patterns and developments in the world of mergers and acquisitions deals. These trends provide insights into the strategies companies are using to grow and expand their operations. By analyzing M&A trends, businesses can gain valuable information about market dynamics, industry consolidation, and emerging opportunities.

M&A trends can also refer to new strategies and technologies companies are using to integrate merged or acquired companies once the M&A deal is complete. For example, the development of modern AI-powered intranet technologies is streamlining and accelerating the integration process for even the largest deals, including cross-border mergers that span the globe.

Current trends in the M&A market

Relatively recent trends in the M&A market include an increase in cross-border transactions, a focus on technology and digital transformation, and a rise in mega-deals.

  • Cross-border transactions have become more common as companies look to expand into new markets and access new customer bases.
  • There is a growing emphasis on technology and digital transformation as companies seek to acquire innovative tech that can help them compete in the digital age.
  • A rise in mega-deals, which involve large-scale acquisitions or mergers between major companies, has been driven by the push for market dominance and economies of scale.

The impact of globalization and technology on M&A trends

Globalization and technology have significantly impacted M&A trends in recent years. With the interconnectedness of economies and advancements in new technologies, companies are exploring and pursuing mergers and acquisitions on a global scale.

The ability to leverage technology for communication and data analysis has also enhanced post-merger integration efforts, allowing companies to streamline operations and achieve synergies more effectively.

How Simpplr can help with M&A integration

M&A integration can be a complex, challenging process. Merging two or more organizations into one cohesive unit requires effective communication, collaboration, and knowledge-sharing among all employees. Without a sturdy platform to streamline the M&A process, the transition can become disjointed, sluggish, and prone to miscommunication.

Simpplr’s modern intranet is the perfect solution to simplify and accelerate post-merger integration. Consider the case of Perspecta. In 2018, Perspecta was formed by the triangular merger of Vencore and KeyPoint Government Solutions with the public sector business of DXC Technology. Each entity brought its own IT infrastructure to the mix, including three separate intranets, and more than half of the combined workforce was based in distributed customer locations or worked remotely. 

Read the case study to discover how this three-company merger leveraged Simpplr in building a new, cohesive culture and brand identity.