Welcome to Game Plans for Growth, our newsletter for owners and managers. This month we focus on how a merger or acquisition could help your business through a downturn. We hope that you find this newsletter useful and as always would love to hear your feedback.
In a contracting market once you have restructured your business to fit lower demand how else can you protect your business for the future? Large corporates often look to combine with competitors to defend their market position such as the proposed merger between BA and Iberia. Why can’t SME businesses benefit in a similar way? With business valuations at historic lows, how could this be an opportunity for your business?
Here are some good reasons why you should consider a merger or acquisition, typically of a competitor:
1. Sales-force cost savings as you eliminate duplicated sales calls
2. Head office cost savings as only one MD is needed. This is also a key point to establish at the start of negotiations as otherwise it can lead to a disruptive culture clash.
3. Streamline operational efficiency as duplicated locations can be closed.
4. Refocus development costs as a combined and larger development budget can be targeted more effectively.
5. Removing capacity from the market so allowing sales prices to firm up. However businesses need to watch that competition requirements are still adhered to.
6. A competitor going into administration could create a great opportunity to acquire products or customers very cheaply.
7. Opportunity to win key people such as niche salesmen or specialist buyers or knowledgeable technology managers
8. Chance to acquire strategic contracts to re-enforce market position. However you will need to review contracts for the ability to assign control.
9. An acquisition or merger can often be a more attractive proposition to potential funders, so making bank fundraisings more likely or equity fundraisings less dilutive.
10. To acquire a new technology and so regain your business’ competitive edge.
In addition Mergers are often done as ‘paper deals’ with shares being used instead of cash for the consideration; so the cash outlay of a Merger could minimal, limited to due diligence and deal costs.
The End Result
The British Airways’ chief executive, Willie Walsh must have identified many of these advantages when he remarked of the proposed BA merger with Iberia: “The aviation landscape is changing and airline consolidation is long overdue. The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment.”
Which company would make a good Merger partner for your business? Look for a respected competitor of a similar size where the cultural fit is good. Also ask yourself, would the strengths of a combined business make for a more successful operation?
In any deal you will want to strike the right valuation and to reduce your risk as much as possible through commercial due diligence, deal structure and thorough but well managed legal process. Business owners would therefore be wise to seek advice from trusted partners such as an experienced vfdnet part time Finance Director.
If you would like an informal chat why not contact us?