When major world events occur such as 9/11, the Great Recession of 2007-2009, and the current COVID-19 pandemic, the resulting changes in policy and the overall market can illuminate strengths and weakneses in a company’s business model. After a volatile and unpredictable previous 12 months, many business owners are assessing how their businesses have performed during the pandemic and whether or not the time may be right for an acquisition or merger. A tactical and well-planned acquisition or merger may offer key advantages over an organic growth strategy when the goal is to fill those gaps quickly.
• Customer base expansion: Because the client portfolios of merging companies rarely overlap 100%, a merger or an acquisition will predictably result in the immediate expansion of the combined company’s customer base. Differences in the products or services of the merging companies can also lead to the diversification of the business which will enable the company to better handle any future unpredictability in the market.
• Intellectual property acquisition: A key feature of an acquisition can be the transfer of technology from one company to another. New technology can lead to additional clients, an increase in revenue, and expanded product lines.
• Cost cutting: Significant savings are often achieved, immediately or in the future, as the result of a merger or an acquisition. The renegotiation of supplier contracts can be a key component in a cost savings strategy as an increase in the quantity of purchased components creates a stronger position for the buyer. Additional reasons for lower costs and/or increased sales margins after a merger or acquisition include the ability to spread fixed costs over a larger sales volume and the introduction or more efficient operation and inventory processes by the merged or acquired company.
• Talent acquisition: A merger or acquisition often presents an opportunity to add talented and/or experienced employees to assist with the various growth and expansion opportunities that result from the transaction.
This is part one of a two-part article. Part II will focus on the possible disadvantages of an acquisition or merger.
Strobl is a team of experienced and trusted lawyers that can advise on all matters related to mergers and acquisitions. For more information, visit Strobl online at www.strobllaw.com or on LinkedIn.