Mergers and Acquisitions (M&A)
Worldwide transactions of mergers and acquisitions (also referred to as M&As) are at their highest peak in history after bouncing back from the 2008 US Recession. Company leadership, boards of directors and shareholders are proving that they are once again confident in the market possibilities that can be gained from risking a merger or acquisition.
What are Mergers and Acquisitions?
A significant amount of time and effort is put into the front side of every deal, including meetings, research, and due diligence. Mergers and acquisitions are the legal processes that take place when two separate companies are combining in some fashion.
Mergers occur when two companies combine to create a new third company.
Acquisitions occur when one company acquires a second company. The purchased company may be absorbed into the parent organization or run as a subsidiary. The company that is of interest to the other company is often referred to as the “target”.
Potential Benefits of M&A
M&As are a calculated risk, but are appealing for many reasons beyond just acquiring hard assets. Benefits of a merger or acquisition include:
- Increased market share
- Acquired intellectual property
- Economy of scale
- Economy of scope
- Transfer of resources
- Vertical integration
Process of M&A
The process of merging with or acquiring another company can be daunting. During the process every minute detail of finances, management and strategy must be discovered and documented. During and prior to a merger or acquisition executive pay, board member responsibility and legal documentation are under increased scrutiny. In addition, gaining employee and management buy-in can make or break positive perception of the merger. The process of a merger or acquisition can vary, but this is the typical process:
- Determine an opportunity.
- Compile a target list.
- Company and buyer analysis.
- Decide how it will be financed.
- Contact the targets.
- Send/receive a teaser.
- Sign a confidentiality agreement.
- Send/review the confidential information memorandum (CIM).
- Analysis of pricing mechanism.
- Share data analysis.
- Submit/solicit an indication of interest (IOI).
- Management presentation and meeting.
- Letter of intent (LOI).
- Process of due diligence.
- Write the purchase agreement.
- Close the deal.
- Handle any post-closing adjustments and integration.
M&A success or failure can be attributed to any myriad of factors, the most important being: 1) Integration strategy; 2) synergy or compatibility of the organization involved; 3) company cultures and philosophies; 4) M&A due diligence; and 5) post-transaction leadership.
Of these five factors, which are representative of a much larger list, one stands out as the lynchpin: culture and people, otherwise known as human resources. Nearly 70% of failures have been attributed to this often-overlooked matter.
Longnecker & Associates’ leadership team has over 100 years of combined experience working with executives and boards of directors to achieve successful mergers and acquisitions. If your organization is considering a merger or acquisition, or currently in the process of one, contact Longnecker & Associates today. Our consultants will provide a personalized evaluation to discover the nuances that set your company apart, and provide a strategic, tactical path forward.