Mergers and acquisitions (M&A) represent critical strategic moves undertaken by companies for expanding, diversifying, consolidating or gaining a competitive edge in their respective industries. Previously, Anand Jayapalan had mentioned that these transactions generally involve the combination of two or more companies, resulting in a new entity or the absorption of one by the other. The motivations behind M&A activities are largely multifaceted and can be driven by various strategic, financial, and operational reasons.
The steps involved in the M&A process are many, ranging from planning to valuation to integration. The decision to merge or acquire a new company is usually undertaken only after analyzing diverse factors like the current status of companies, the present market scenario, as well as threats and opportunities involved.
Here are some of the major stages of mergers and acquisitions:
- Formulation of strategy: The success of mergers and acquisitions relies on the strategies followed by a company. It is vital to understand what a business can gain from the merger or acquisition. A good strategy largely revolves around a company having a proper idea of what they expect to gain from making the transaction. For instance, a business may want to acquire another company or merge with it to expand product lines or gain access to new markets.
- Identification of cost-benefit analysis: This step involves evaluating the expenses of the M&A process, as well as the assessment of revenue post synergy. To maximize the probability of M&A success, as well as prediction of resources to be allocated, costs -benefits analysis is vital prior to making any decisions on the deals. Conducting cost-benefit analysis becomes important in providing evidence in terms of costs of managing the deal and the value of the target company for the purpose of supporting M&A decision-making.
- Due diligence process: The overall success of M&A would be majorly impacted by how competent a company is in carrying out the process of due diligence. This shall involve investigating the target company, its operations, human capital, as well as tax and legal structure and its financials prior to the signing of a contract.
- Valuation process: This stage involves orderly assessment and evaluation of both present and future market value, and is among the most critical steps in the M&A process. The acquirer may ask the target company to provide substantial information that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target.
- Post-Integration Issue: The key purpose of this stage is to make the merge company operational so that strategic value can be efficiently delivered. As the deal is closed, the management teams of both organizations shall work together to integrate the two businesses as efficiently as possible. Doing so would include the integration of processes, systems, strategies etc.
In the past, Anand Jayapalan had spoken about how M&A typically involves integrating people and changing the culture of merging or acquiring companies, possibly to develop into a hybrid culture. This integration would include a change in the mindset and behaviour of the people. Therefore, addressing cultural issues during the integration process becomes extremely important.