- Through a Merger
A merger unites two independent, similarly sized companies as one new entity, typically with a new name. This strategy adds value to both companies by growing into new market segments, gaining market share, or expanding geographic reach. A merger enables the new venture to benefit from the best that each company brings to the table as far as expertise, talent, technology, products, services, assets, and market penetration. In total, it offers a powerful competitive edge. A merger can also be less time consuming than other strategies, such as relying on organic growth.
- Through an Acquisition
In an acquisition, a company purchases a 51 to 100 percent stake in another company, taking control of it and all of its assets. Acquiring a business means acquiring its already established customer base, talent, geographic diversification, portfolio of services, and other immediate growth opportunities that would take years to create under organic growth.
Both mergers and acquisitions offer several advantages for a company looking to generate growth and value.
- Expansion: M&A can easily extend the reach of a business in terms of geography, products and services, and market coverage. This translates into more customers gained without having to hire more salespeople or increase marketing expenditures.
- Consolidation: M&A can unite two competitors to bolster market domination. It can also increase efficiencies by cutting surplus capacity or by sharing resources. Plus, M&A can increase production efficiency and bargaining power with suppliers, coercing them into lowering their prices. It can also allow a business with weak financials to combine with a stronger one and pay off debt.
- More Capabilities: M&A can boost a company’s capabilities by quickly adding new talent and new technologies rather than taking the time and energy to develop each from scratch.
- Lower Costs: By merging with or acquiring another business, you can lower costs and increase efficiency and output.
- Speed: M&A empowers a business to grow more quickly, altering the landscape of the sector more rapidly than competition can adapt and respond.
- Tax Perks: Profits or tax losses may be transferable within a combined business, benefiting from varied tax laws within certain sectors or regions.
- Unbundling: Sometimes a company’s underlying assets are worth more than the price of the business as a whole. In this case, a company can acquire another and quickly sell off different business units to other buyers at a substantially higher price.
- Through a Strategic Alliance
Mergers and acquisitions adjoin companies through total change in ownership. But there are ways that businesses can share resources and activities for a common goal without sharing ownership, known as strategic alliances. Strategic alliances enable a business to quickly grow its strategic advantage, but with less commitment. There are several ways a strategic alliance can be accomplished.
- Equity Alliance: The creation of a new entity that’s owned separately by the two partners involved, such as a joint venture. Both companies remain independent but form a new company jointly owned by the parent companies.
- Consortium Alliance: This is the same as a joint venture but can be formed with several partners.
- Non-equity Alliances: These do not involve the commitment implied by ownership and are often based on contracts, such as franchising or licensing. Under this contractual alliance, one company gives the other the right to sell its products or services or to use intellectual property in return for a fee.
- Scale Alliance: When businesses combine to achieve necessary economies of scale in the production of products or services or by lowering purchasing costs of materials or services.
- Access Alliance: This occurs when a company needs to access the capabilities of another company needed in order to produce or sell its own products and services. An example of this is when an international company needs access to a local company to be able to product or sell the product.
- Complementary Alliance: When companies of similar value combine their unique but complementary resources so both have any gaps filled or weaknesses strengthened.
- Collusive Alliances: This involves companies colluding in secret to bolster their market strength, reduce competition, and demand higher prices from customers or lower prices from suppliers. Regulators usually discourage such behavior.
Mergers, acquisitions, and alliances can provide many benefits for a business that is seeking growth far above and beyond what is possible through organic growth. Each can enable:
- Faster access to new products or markets
- Instant market share
- Economies of scale
- Better distribution channels
- Increased control of supplies
- Lessened competition
- Adding of intangible assets
- Removal of entry barriers to new markets
- Deregulation in an industry or market
If you are considering a merger or acquisition strategy to grow your business, we can make it happen. Our world-class team of experts at Benchmark International is a true game changer for accelerating your business growth in the smartest ways possible. Contact us today and look forward to a brighter tomorrow.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 12 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.