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For startups and early and small companies, a merger or acquisition can be an excellent part of your overall business strategy. It can help you expand your business or add a new dimension to your overall product. Equally, completing a merger could also help you get out of a tricky financial situation. As such, it is a good idea to keep in mind why and when you should consider merging or acquiring another business. This article will touch on some of the key reasons you might consider starting a merger and acquisition process. It will also consider when the best time to think about a merger or acquisition might be for your business.
What is a Merger or Acquisition?
Mergers and acquisitions (sometimes referred to as M&A) are the act of consolidating assets or a company.
A merger is where two companies combine, and one ceases to exist after becoming absorbed into the other. The combined company can sometimes change its name or operate with a wholly new business strategy. In this situation, the board of directors of both companies must get approval from their shareholders.
On the other hand, an acquisition is where one company buys another company by acquiring a majority share, but the target company keeps its original name and legal structure.
Are There Other Types of M&A?
Merging and acquiring is not the only type of M&A, and it is good to know the terminology of other types of M&A processes.
Similarly, you can also have a management acquisition (sometimes called a management-led buyout). This is where the company executives buy a publicly listed target company intending to make it private.
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Why Should My Startup Consider an M&A?
With M&A activity in the last year reaching all-time highs, it is worth considering some of the benefits that an M&A deal could have for your business.
Ultimately, whether M&A is suitable for your business depends on your product or service and the stage of your startup. Some common reasons for merging or acquiring include:
- improving business efficiency and growing your team;
- having access to new technology or new products; and
- accessing new markets.
Improving Efficiency and Growing Your Team
By combining your activities with another business, you can reduce costs through economies of scale and leverage some of the expertise of the other team. This can make your overall processes more efficient.
Access to New Technology and New Products
As a startup, you may wish to use technology that another company holds to build on your product or service. Similarly, you can expand the offering of your business by assimilating some of the products offered by the other company.
Accessing New Markets
If you merge with a company that is not strictly within your market, you may have the opportunity to adapt your product or service to make it a right fit for the market they operate in. This can help you grow your product and your brand and access new customers, which can be very profitable in the long term if your product or service has high growth potential.
Points to Keep In Mind
Despite all of these positives, it is vital to make sure that you only consider M&A if you have a company that is a good fit with yours. Completing an M&A process with a business that does not work well with you can be counterproductive in the long term, resulting in you losing what you have worked hard for.
As a result, it is good to look for services in the investment banking industry. Investment bankers are well in tune with trends in M&A and can offer you bespoke advice to help you through the process. Naturally, however, this can be a very costly process, so you should weigh the pros and cons for your business beforehand.
Key Takeaways
An M&A deal can be an excellent way for your business to achieve some of its strategic goals and develop its product or service. Suppose you are keen to start an M&A process. In that case, it will be valuable for you to get advice from an advisor within the investment banking industry. They can ensure that you merge with or acquire a company that fits your business and your vision.
If you need help with a merger or acquisition, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A merger is where two companies combine. In this situation, one company typically assimilates into the other.
An acquisition is where one company buys a target company. The target company usually continues to operate with the same legal structure even after purchase.
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