Last Updated on December 16, 2022 by Anda Malescu
The power a company can generate in concert with another is immense, and merger and acquisition strategies for growth can be incredibly complicated in the United States. Not only merger and acquisitions comprise of more than one player and intricate strategies, but they also involve issues ranging from valuation and deal structure to tax and securities laws.
Over the past decades, we have seen companies such as Google and General Electric, growing dramatically and building revenues through aggressive merger and acquisition strategies. Seasoned executives and entrepreneurs continuously search for efficient and profitable ways to increase revenues and gain market share.
The typical strategic growth options are as follows:
- organic
- inorganic
- external means
Examples of organic growth are hiring additional salespeople, developing new products, or expanding geographically
The best example of inorganic growth is an acquisition of another firm. This is usually done to gain access to a new product line, customer segment or geography. Finally, external revenue growth opportunities are franchising, licensing, joint ventures, strategic alliances, and the appointment of overseas distributors. The overseas distributors are available to growing companies as an alternative to mergers and acquisitions as a growth engine.
At the heart of all decisions regarding mergers and acquisitions there is a fundamental question – is the company better off buying a new capability, market entry, customer base, earnings opportunity, and more, or attempting to build it from zero. The dedication of financial and human resources to organize growth should be based on long-term, sustainable value creation for the company’s shareholders, but achieving this objective through growth may require more patience and may result in some lost opportunities.
The allocation of resources to mergers and acquisitions tend to expedite the achievement of growth objectives, but also increases the level of risk if deals are not structured and negotiated properly.
The variables a company should consider in merger and acquisition strategies include:
- The competitiveness, fragmentation and pace of your marketplace and your industry
- Your access to and cost of capital
- The specific capabilities of your management and advisory teams
- The strength and growth potential of your current core competencies
- The volatility and loyalty of your distribution channels and customer base
- The degree to which speed to market and scale are critical in your business (including typical customer acquisition costs and time frames)
- The degree to which your company operates in a regulated industry
There are few merger and acquisition strategies to achieve growth. On the surface, the distinction between these strategies may not really matter, since the net result is often the same – two companies (or more) that had separate ownership are now operating under the same roof, usually to obtain some strategic or financial objective. Yet the strategic, financial, tax, and even cultural impact of a deal may be very different depending on the strategy used – merger, stock acquisition, takeover, or asset purchase.
A merger typically refers to two companies joining together (usually through the exchange of shares) as peers to become one. An acquisition typically has one company, the buyer, that purchases the assets or shares of another, the seller, with the form of payment being cash, the securities of the buyer, or other assets that are of value to the seller. In a stock purchase transaction, the seller’s shares are not necessarily combined with the buyer’s exiting company but are often kept separate as a new subsidiary or operating division. A takeover is a special form of acquisition that occurs when a company takes control of another company without the acquired firm’s agreement.
Takeovers that occur without permission are commonly called hostile takeovers. In an asset purchase transaction, the assets conveyed by the seller to the buyer become addition assets of the buyer’s company, with the hope and expectation that over time, the value of the assets purchased will exceed the price paid, thereby enhancing shareholder value as a result of the strategic or financial benefits of the transaction.
Contact us or schedule a consultation with your business lawyer in Miami, Florida USA to advise you on merger and acquisition strategies and help you execute M&A transactions.
Malescu law – professional specialized in mergers and acquisition strategy
Malescu Law P.A. – Corporate Lawyers
