m&a transactions involve the purchase of a company by a different one, usually for cash or stocks. The goal is to gain an enduring competitive advantage in the market. It might not be the ideal solution for all goals, but those that are aware of its benefits and utilize it correctly will see significant growth.
M&A can help companies achieve economies of scale. It’s the phenomenon that “one plus one is more than.” Facebook for instance was able to tap into a brand new customer base when it bought WhatsApp and Instagram. It didn’t need to invest a lot in the development of these services. It also gained the size and market presence which increases bargaining power with suppliers or customers.
A common motive is the desire to create an empire, and managers are enticed by the prospect of buying businesses that will increase the market share or lessen competition. This strategy could be successful provided it is implemented with clear goals and precise financial projections.
M&A can aid a company to prosper and thrive in volatile markets. For instance, a number of banks merged to protect themselves from the Great Recession of 2008-2011, when credit quality declined. It is also used to diversify income by purchasing companies from a different region or industry. Retailers, for instance frequently acquire companies that specialize in technology or ecommerce to enter into new markets and boost revenues. A common mistake is to view M&A as a purely financial tool, without thought given to strategic value creation.
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