MERGERS AND ACQUISITIONS
While there are many types of buyers, there are even more reasons why they buy.
Product line expansion - acquiring market share is of interest to both strategic and individual buyers.
Talent acquisition - Strategic and individual buyers are also interested in obtaining talent.
Economies of Scale - Developing economies of scale is another objective of a strategic buyer. By acquiring a company with additional market share, a strategic buyer should be able to increase profit margins through economies of scale.
Fast profit - Substantial returns attract financial buyers to potential acquisitions. Acquiring a business entity involves a significant amount of risk. Therefore, a substantial reward in the form of high returns on investment is required for taking this risk.
Easy financing - The accessibility of capital from banks, finance companies and venture capitalists has made acquisitions more attractive to buyers. Low interest rates allow for better cash flows, enabling buyers to pay higher prices for companies and making growth through acquisition more feasible.
The motives for buying a company are important to look at as well as the reasons and timing for companies being sold. Companies sell for a variety of reasons.
Exit strategy - The most common reason to sell is to provide the owner with an exit strategy. These owners are looking to turn a lifetime of hard work into enough cash to allow them and their families to live the rest of their lives comfortably. Selling the company is the easiest way to do this.
Added management strength - Other companies have reached a plateau in their growth and need the assistance of a sophisticated management structure to continue growing.
Capital infusion for growth - Many sell decisions are driven by cash. Either the lack of or desire for cash has motivated many companies to sell. Due to lack of access to capital, poor performing companies find it difficult to keep up with the latest technology ö without which they will soon find themselves out of the market place. As a result, owners of these businesses see selling to a cash rich buyer, capable of infusing the company with much needed capital, as an attractive alternative.
Maximized opportunity - companies performing well in the industry are also motivated by cash to sell. Owners of these businesses recognize that exiting at the top is the best way to get the maximum return on a life-long investment. These owners decide to sell while the market it hot. And today itās really HOT!
The level of activity of mergers and acquisitions makes it an essential strategic planning issue. Current economic conditions are making mergers and acquisitions a win/win proposition for buyers and sellers. Sellers are receiving premium prices and buyers are realizing higher returns. Whether a company is planning to buy, sell or remain the same, it must have a strategy for dealing with the merger and acquisition activity in the industry. Don't be left behind.