Mergers and acquisitions have gained popularity as a growth strategy for businesses aiming to enter new markets, obtain a competitive advantage, or acquire new technologies or skill sets. Due to rapid changes in today’s economy and market, M&As are particularly common in the professional services sector.
What effect do all these mergers therefore have? More significantly, does your company stand to gain from an M&A?
Searching for a Solution to a Company Issue through Strategic M&A
Strategic and financial mergers and acquisitions are the two main categories. As the name suggests, a financial M&A is pursued with financial objectives, frequently to make some fast money or as an investment.
A distinct kind of company problem can be solved through strategic mergers and acquisitions. The buyer can be trying to get a hold of a new product line, expand their facilities, break into a new market, or acquire knowledge and intellectual property. A strategic M&A for professional services companies frequently aims to boost credibility, enhance intellectual firepower, or alter the balance of power in a given market. The bottom line is a strategic merger benefits both the company being acquired and the company doing the acquisition.
Efficiency of M&A as a Growth Strategy
A multitude of circumstances warrants mergers and acquisitions. For instance, a chance can come up that demands quick decision-making. Or perhaps, a rival threat forces a defensive maneuver to become bigger and faster.
The following three scenarios demonstrate how M&A community can effectively use such deals as a growth strategy:
1. M&A closes crucial gaps in client lists or service offerings.
It might leave a hole in a company’s essential offerings when the market shifts as a result of outside events or new laws and regulations. This is a fantastic time for a strategic merger.
After 9/11, the national security and military sector lacked the necessary expertise to meet the federal government’s fast-shifting requirements. Companies immediately understood that without the knowledge and experience required to achieve the new security terms, they would be left behind. They who had the necessary expertise and client bases discovered overnight that they were strategically valuable and in high demand as acquisition prospects.
2. It’s a successful method of acquiring talent and intellectual property.
There is a severe lack of experienced professional staff in several businesses. Examples that readily come to mind include engineering, accounting, and cybersecurity.
In actuality, intellectual property (IP) is the new money in contemporary commerce. IP is now actively purchased and sold, compared to when it was hidden away and well guarded. The fastest way for many businesses to gain market dominance — or at the very least, to put a stop to aggressive competition — is to acquire a company and its intellectual property.
3. M&A adds a fresh business strategy.
Billable-hours business models are the foundation of many professional services organizations, but they are by no means the sole choice. A fixed charge or performance-based incentives are two ways some businesses make money. Some people might use subscription models (popular in the software industry).
Of course, the value of a successful M&A growth plan goes beyond just your compensation. Additionally, a merger could introduce a brand-new service, like brokerage, insurance, or money management. The simplest method to develop and test a new business model is to buy a company that is already doing it successfully. In this manner, potential mistakes brought on by inexperience are avoided.
Failure of M&A as a corporate strategy
However, not all mergers and acquisitions that are a part of the corporate strategy are successful. Problems with implementation or faults in the logic or rationale behind a strategy can occasionally cause it to fail. Let’s examine some potential pitfalls in an M&A growth strategy:
1. Cultural disparity
Different businesses have unique cultures. However, the cultural disparity might be troublesome.
By being clear about the culture you want and using all the resources at your disposal to make sure you have it, you can prevent cultural clashes. For instance, when considering a potential blending of corporate cultures, education, the appropriate incentives, and a focus on your staff brand are most helpful.
2. A decline in distinctiveness
When the characteristics — and advantages — that make one firm valuable are irrelevant to the other brand, avoid mergers. The acquired or merged firm weakens the brand and competitive advantage rather than adding important assets, capabilities, or value.
3. Marketplace confusion
Let’s imagine that Firm B, a cybersecurity company that supports retailers, is acquired by Firm A, a well-regarded accounting firm with a manufacturing focus. The purchase appears to be highly strategic. The united company, A+B Associates, attempts to expand its area of expertise by adding retail after spotting an opportunity. The end consequence is a perplexing market. Does A+B still have a manufacturing focus? Are they no longer a firm of accountants?
If the main justification for the merger is development for the sake of growth, the confusion may be even worse. With a sound, research-based strategy to position the merged brand and assist present and potential customers in comprehending the justification and advantages of the merger, the entire confusing mess may be avoided.