In crisis scenarios, it is common for companies in various sectors to resort to mergers and acquisitions to overcome difficulties and ensure a reasonable growth rate. But this strategic decision needs to be carefully evaluated so that the consequences do not harm the companies’ future.
Mergers and acquisitions represent an essential step in the life of companies. For a higher probability of success, strategic planning of mergers and acquisitions companies should be included to establish the basis for achieving this goal.
In this sense, an acquisition based on a corporate strategy is much more effective than an acquisition that arises from an impulsive reaction to an attractive opportunity. An acquisition cannot be subject to the appearance of a market opportunity; it must have a maximum degree of correlation with the policies defined by the organization.
The current trend in mergers and acquisitions companies is to develop an M&A as a proactive program, where the buyer takes the initiative. Rather than reacting to opportunities as they arise, the bold profile is oriented toward determining the objectives first and then moving aggressively to achieve them.
With a proactive acquisition program based on strategic planning, a company is closer to avoiding costly mistakes and favoring business combinations that contribute to shareholder value creation. It even gives management considerable control over the company’s destiny.
According to several mergers and acquisitions companies, the most common objectives in M&A are growth, diversification, access to technology, and introduction of new products and markets, as they should follow the guidelines outlined by the corporate strategy.
The strategic planning process is essential to keep a company in business. The starting point is the definition of the corporate mission, where the emphasis is placed on the central policies that the company wants to emphasize.
Among the advantages expected by businessmen who are interested in mergers and acquisitions, it is possible to name the following:
- Lower operational costs.
- Access to new markets.
- Talent development.
- Strengthening of the brand.
The first thing to do during an expansion is to review whether strategically the company to be acquired makes sense to buy it. This is due to several factors:
- It competes in segments similar to those we know, and it is possible to be more successful by penetrating those markets.
- It seeks to penetrate new segments where a company is better positioned.
- It handles customers, products, and services similar to those of our company successfully in other markets.
- It is in a location where our business has no presence.
- It is in the same state but in different cities.
- It is in the same city, and it is possible to further consolidate the market by acquiring it.
- It is up to mergers and acquisitions companies to give more or less weight to each of these possibilities according to their strategy, as well as the business they wish to acquire. Subsequently, it is necessary to clearly outline which companies we are looking to buy or merge with.
Three points are necessary to contemplate to achieve a successful merger/acquisition:
- In family businesses, the importance of the second and third generation, sometimes the combination of lack of interest and frustration with the next generation’s low profitability, makes the founders find themselves without an adequate succession plan to maintain the family business so that they are forced to sell.
- Reduction of working capital. When the exchange rate shoots up rapidly, many distributors keep their prices at the old rate and believe they are getting more sales than their competitors. In reality, what is happening is that they are reducing their natural and working capital. This is evident in their repurchase power, where they will buy fewer units than they had acquired before since they gave away their money by selling at rates below their repurchase rate. This is one of the leading and biggest mistakes made by small distributors.
- Audit reveals low profitability or loss of equity. Some owners do not know that their company is actually recording meager profitability and only see the few thousand pesos they earned. When they decide to carry out an audit or hire an external firm, the first thing that comes out is that it is more convenient to sell the business than to stay in it. Modern distribution requires sales systems, inventory management, determination of price sensibility, and a system that allows the company to manage its inventory.