Merger and acquisition are the corporate strategies that deal with buying, selling or combining different companies with a goal to achieve rapid growth. However, the decisions on mergers and acquisitions are taken after considering a few facts like the current business status of the companies, the present market scenario, and the threats and opportunities etc. In fact, the success of mergers and acquisitions largely depend upon the merger and acquisition strategies adopted by the organizations.
Merger and acquisition strategies are the roadmap for the corporate development efforts of an organization. The strategies on merger and acquisition are devised to transform the strategic business plan of the organization to a list of target acquisition prospects. The merger and acquisition strategies offer a framework, which evaluates acquisition candidates and helps the organization to identify the suitable ones.
Many big companies continuously look out for potential companies, preferably smaller ones, for mergers and acquisitions. Some companies may have their core cells, which concentrate on mergers and acquisitions. Merger and acquisition strategies are devised in accordance with the policy of the organization. Some may prefer to diversify or to expand in a specific field of business, while some others may wish to strengthen their research facilities etc.
Merger and Acquisition Strategy Process
The merger and acquisition strategies may differ from company to company and also depend a lot on the policy of the respective organization. However, merger and acquisition strategies have got some distinct process, based on which, the strategies are devised.
(i) Determine Business Plan Drivers
Merger and acquisition strategies are deduced from the strategic business plan of the organization. So, in merger and acquisition strategies, you firstly need to find out the way to accelerate your strategic business plan through the M&A. You need to transform the strategic business plan of your organization into a set of drivers, which your merger and acquisition strategies would address.
While chalking out strategies, you need to consider the points like the markets of your intended business, the market share that you are eyeing for in each market, the products and technologies that you would require, the geographic locations where you would operate your business in, the skills and resources that you would require, the financial targets, and the risk amount etc.
(ii) Determine Acquisition Financing Constraints
Now, you need to find out if there are any financial constraints for supporting the acquisition. Funds for acquisitions may come through various ways like cash, debt, public and private equities, PIPEs, minority investments, earn outs etc. You need to consider a few facts like the availability of untapped credit facilities, surplus cash, or untapped equity, the amount of new equity and new debt that your organization can raise etc. You also need to calculate the amount of returns that you must achieve.
(iii) Develop Acquisition Candidate List
Now you have to identify the specific companies (private and public) that you are eyeing for acquisition. You can identify those by market research, public stock research, referrals from board members, investment bankers, investors and attorneys, and even recommendations from your employees. You also need to develop summary profile for every company.
(iv) Build Preliminary Valuation Models
This stage is to calculate the initial estimated acquisition cost, the estimated returns etc. Many organizations have their own formats for presenting preliminary valuation.
(v) Rate/Rank Acquisition Candidates
Rate or rank the acquisition candidates according to their impact on business and feasibility of closing the deal. This process will help you in understanding the relative impacts of the acquisitions.
(vi) Review and Approve the Strategy
This is the time to review and approve your merger and acquisition strategies. You need to find out whether all the critical stakeholders like board members, investors etc. agree with it or not. If everyone gives their nods on the strategies, you can go ahead with the merger or acquisition.