M&A is a very complex business procedure that requires major changes to corporate strategies. It can lead to positive growth and a higher return on investment, or it can be disastrous if the strategy is not well thought out and implemented.
By acquiring another company, you can expand your market by reaching out to new customers and boosting revenues. Choosing the right company however, is vital for success. Too many times buying in haste results in a failure to integrate which is costly for the acquirer as well as to the customers of the acquired company.
Many M&A deals are horizontal, which involves combining rivals from the same sector. Cross-sector convergence has also become popular with retail companies buying tech or ecommerce firms.
The initial steps of the M&A process are to create an inventory of potential companies to acquire, conducting high-level conversations with each to determine how they might be able to work together, and preparing for due diligence. The next step is negotiating and completing the deal. Based on the transaction the acquiring company will make payment in cash or stock.
The sale of a business is complete when all closing conditions are fulfilled and both parties sign the sales agreement. Antitrust authorities will review the transaction during the M&A to ensure that it doesn’t create monopolies on certain markets. When the company that is buying passed the antitrust review, it can close the acquisition and transfer ownership of the target to the buyer.
