Mergers and acquisitions refers to the unification of two companies or assets via official financial transactions. With a merger, two or more businesses combine to create a joint new entity. Acquisitions entail one business being taken over by another business.
These are strategic moves that many businesses will consider or take part in at some point. Mergers and acquisitions may occur for several reasons, including diversifying offerings, reducing costs, obtaining a bigger market share, gaining a competitive advantage and eliminating competitors.
These transactions are complicated undertakings that involve numerous legal, intellectual property, financial, human resources and business considerations. Here is a look at what businesses need to know about mergers and acquisitions.
All Mergers and Acquisitions Involve Five Key Phases
Mergers and acquisitions (M&A) are complex transactions that require careful planning and execution. There are five key phases involved in most M&A deals:
- Strategic Planning: In this phase, companies identify potential targets, define their strategic objectives, and assess the feasibility by analyzing financial and operational data.
- Due Diligence: Once a target has been identified, the acquiring company will conduct a thorough investigation of the target’s financial, legal, and operational status.
- Negotiation and Valuation: In this phase, the acquiring company will negotiate the terms of the deal, including valuing the target company and determining the appropriate payment structure.
- Integration Planning: This phase involves identifying key personnel and resources, establishing communication channels, and setting timelines and milestones.
- Implementation: The final phase involves executing the integration plan and may involve restructuring, downsizing, or reorganizing operations.
By carefully planning and executing each phase, companies can minimize risks, maximize value, and achieve their strategic objectives.
Mergers and Acquisitions May Take a Significant Amount of Time
Mergers and acquisitions tend to take a long time, with six months being a typical time frame, even for smaller businesses. The precise amount of time it takes will be influenced by the urgency of the buyer and other factors. However, the time frame can be reduced by working with business advisors and negotiators who can make quick decisions on behalf of the business.
Sellers should gather and make available to potential buyers, all of their key contracts and business-related documentation, and they must be prepared to explain the value they will provide.
Sellers Can Get The Best Deals by Attracting Multiple Bidders
Sellers generally get the best deals when they attract multiple potential bidders for mergers and acquisitions. Whether they command a higher price or better terms in the deal, a competitive bidding process is highly beneficial, even if only one of the potential bidders is serious.
The perception that multiple parties are interested in a business can help with negotiations. In contrast, negotiating with just one bidder can put the selling company at a disadvantage.
Intellectual Property Will Play a Crucial Role
The intellectual property that belongs to a selling company, such as patents and trademarks, will be a major factor in the negotiations in mergers and acquisitions. Buyers will need to know the ownership and other rights that the seller has over all of the intellectual property that is essential to its current and potential future business. Buyers will also check to see if the seller is involved in any intellectual property litigation or similar disputes that could jeopardize profitability.
Valuations are Negotiable
As with many of the other terms in a merger and acquisition deal, the offer price and valuation are negotiable. This means that even when a number offered by the buyer seems acceptable, making a counter offer is a good idea; buyers rarely start purchases with their best offer. Reasonable counter offers can lead to negotiations that will help the seller receive a better price.
Insurance Cannot be Ignored
In mergers and acquisitions, it is essential for buyers and sellers to update their insurance coverage to ensure that every risk has been addressed.
For example, when operations are added to a company through a merger or acquisition, or a move to a new location, there can be new exposures that require their insurance policies to be revised accordingly. In some cases, a specific insurance policy geared toward mergers and acquisitions may be necessary to minimize the risk during this important transition.
Look Out for Unanticipated Costs
The upfront cost of mergers and acquisitions often takes center stage during negotiations, but businesses also need to consider the potential indirect costs that such moves could incur.
These are costs that may not arise until months or years after the initial agreement has been made. For example, it is important to consider how the deal could impact employee retention as recruiting costs and loss of talent can have a serious impact on the bottom line.
Work with Business Benefits Group (BBG) to Protect the Future of Your Business
The experienced benefits consultants, executive strategists and human resources specialists at Business Benefits Group can help your company prepare for a successful merger or acquisition. Contact us today to discuss your business’s goals and get started on the due diligence process.