7 Main Things You Need To Know About Mergers and Acquisitions

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Business mergers and acquisitions are key milestones in the journey of a company. M&A deals are not signs of failure. They are a strategic move to achieve synergies and achieve organizational goals with the help of better resources. Any firm that intends to be involved in mergers and acquisitions deals consider different aspects, including:

  • Legal matters
  • Financial aspects
  • Human resource-oriented issues
  • Intellectual properties
  • Assets

These are all the fundamentals that should be addressed expertly. There are some other factors that should be part of consideration before entering into M&A mergers and acquisitions. In this article, we will discuss these elements in detail. Here is a brief introduction to the definition and reasons for mergers and acquisitions.

 

What are a merger and acquisition?

Merger and acquisition are two different business transactions but are often used collectively.

 

Mergers

A merger is a business deal in which two businesses combine to make a new corporate entity. They generally combine their human resources, assets, and financial resources, etc, to achieve their goals.

 

Acquisitions

Acquisitions are transactions in which a firm or company buys another company. The target company may keep its separate identity depending on the contract. Or, it may become part of the acquiring company.

There are multiple types of mergers and acquisitions, such as:

  • Conglomerate
  • Asset purchase
  • Reverse merger
  • Consolidation
  • Concentric
  • Horizontal and vertical mergers, etc.

The type of merger or acquisition is essentially triggered by the reasons behind the transaction. For example, the reasons behind horizontal mergers include:

  • Expand customer base
  • Reduce competition
  • Save costs
  • Achieve revenue growth
  • Increase market power

 

Here are seven important things you need to know about mergers and acquisitions.

 

 

1. The mergers and acquisitions process can take time

It is important to know that mergers and acquisitions are time-consuming transactions. Based on the sizes of the companies, one transaction can take up to six months or even more. This period can reduce or stretch based on buyers’ and sellers’ urgency to get things done. Another factor that can affect this duration is due diligence in mergers and acquisitions.

There are a few ways to reduce this time period:

  1. Keep financial statements and other important documents ready for due diligence. One way to do it is to use virtual data rooms.
  2. Hire investment bankers to run the auction process in a tightly controlled environment. It will compel both sides to reach a decision.
  3. Dealmakers can also get help from the MNA community, which provides important insights, practical tips, and recommendations for the best M&A books to its members.

 

2. Clearly define your strategy and objectives

It is needless to say that having clarity on objectives and reasons for mergers and acquisitions is mandatory. Do you want to expand products or services, grow market presence, or aim to access new technologies? Defining these goals early not only helps in choosing the right partner, but you can decide which merger and acquisition type suits your needs.

 

3. Buyers are interested in the seller company’s projections and financial statements

The financial statements of the public companies are easily available. Interested buyers can easily access and analyze those statements before even contacting the potential target company. However, this is not the case with private companies.

Buyers will prefer audited financial statements and the company’s financial model. Therefore, the target company must be able to readily provide these documents to the potential buyers.

 

4. Due diligence is the key

Due diligence in mergers and acquisitions is the key to a successful closure. Due diligence is a process in which the buyers critically assess a company’s financial, legal, operational, and technological aspects.

Hiring specialist M&A solicitors will help identify potential liabilities and risks. It ensures better and more informed decision-making.

 

5. Understating the regulatory requirements

Apart from the above-mentioned factors, it is important to keep an eye on regulatory requirements. These may include:

  • Employment laws
  • Corporate governance standards
  • Competition law
  • Data protection law (using certified virtual data room vendors for data management can be fruitful).

 

6. Understand tax implications

There are always significant tax implications in mergers and acquisition deals. A certified tax consultant will educate you about implications related to:

  • Value-added tax
  • Stamp duty
  • Capital gains tax

And other important complications that may arise in the future. Tax planning is essential to optimize your financial position during the transaction.

 

7. Post-merger/acquisition integration

Lastly, the dealmakers must answer the question, “How to go about the integration phase once the transaction is complete?”. It is necessary to have a complete integration plan in order. It will minimize interruptions and streamline operations.

Pro tip: streamlining communication and data sharing during the integration phase becomes smooth with the help of online data room software.

 

Summing it up

Mergers and acquisitions require compressive planning and research before entering into the transaction. It is vital to assess different factors, including:

  • Tax implications
  • Regulatory requirements
  • The time needed for the transaction
  • A clear picture of objectives and goals behind mergers and acquisition deals.

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