How To Unlock Mergers and Acquisitions Potential of Your Business
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Your business may have been thriving with promising growth prospects for some time. Revenues are increasing, profit margins are expanding, and cash inflows are adequate. You may have already considered expanding your business to increase its capacity. However, you still worry about the industry steering into reversal.
Thankfully, inflation has become more stable, although interest rates may rise some more. You can proceed with your expansion plans. Mergers and acquisitions (M&As) can help you reach your business goals. This article will discuss M&As and how you can maximize your potential to close deals.
Mergers and Acquisitions Defined
Mergers and acquisitions, or simply M&A, is the process of combining two business entities into one. Often, the end goal of an M&A is achieving synergy among businesses with the same goals. It increases the operating capacity and fortifies the market presence of companies.
In an M&A, a company may absorb another company, merge with another to form a new one, or acquire assets. All of these are typical examples of M&As. But some companies can make a hostile takeover or a tender offer for the shares. These can be unconventional, but they still fall under M&As.
People tend to use mergers and acquisitions interchangeably. However, there are notable differences in their meanings and proper usage. Merger, from the word itself, applies when two separate firms form a new business entity. This integration aims to improve scalability, widen the customer base, and become a new market entry.
For example, Kraft Foods Group, Inc., merged with H.J. Heinz Co. to form Kraft Heinz Company. Meanwhile, acquisition applies when a company purchases and takes over another company. More specifically, it happens after buying at least 51 percent ownership of the target company. The million-dollar purchase of Whole Foods Market by Amazon is a popular example.
Ways To Unlock Your M&A Potential
The market conveys mixed conditions these days. There can be recessionary headwinds, but opportunities are present. Growth prospects are enticing, considering the stable rebound in the following years. As a business wanting to enter into an M&A deal, remember the following tips.
Maintain a Robust Performance
Maintaining a robust performance in a rugged market environment can be challenging. But your business can rise above disruptions in more ways than you think. Assessing each product or service you produce to improve operational efficiency can help. Finding effective and flexible marketing and pricing strategies can boost demand.
Taking care of your staff and deepening customer ties are some ways to stimulate labor productivity and revenue growth. They can help keep a strong market positioning. In turn, you can derive more returns, sustain your operations, and finance M&As.
Reassess and Project Financials
In connection with the first tip, you must reassess your financial aspect. Doing so will hint at your capacity to sustain and increase your operating capacity. Check the financial reports to have a more precise evaluation of your performance. You can focus on some accounts to get a quick snapshot of your financial condition.
You can start by checking your historical revenues and margins. It is a powerful metric to measure the efficiency of each product and service you produce. Compare it to the Balance Sheet and Cash Flow. Doing so can determine your capacity to enter into M&A deals. Some effective ratios include Net Debt/EBITDA, Quick Ratio, Debt/Equity Ratio, FCF/Sales Ratio, and Asset Turnover Ratio.
After assessing your historical financial performance, you can estimate your financial performance. Note that the first year after the M&A is often less viable. You must consider operational adjustments and M&A-related expenses. Hence, you must prepare a three or five-year financial projection to know if M&A is worth the try.
Digitalize and Automate
Digitalization and automation can help your business in various ways. Human capital management (HCM) solutions, invoice automation, and cashless transactions are some examples. Applying these can help expedite business processes, including M&A deals, and improve efficiency. You can execute your cost-reduction strategies effectively and generate more income. In turn, your business will become more attractive to investors and potential business partners.
Build Trust Across Numerous Stakeholders
Business stakeholders include customers, investors, employees, and borrowers. Gaining their trust depends on how you manage your business. The preceding tips are some of the primary contributors towards gaining that trust.
Support your staff, and meet customer needs and preferences. These are the first few steps towards a successful business.
Be honest with your financial reports, and maintain adequate cash levels. These will help you capture the attention and trust of your borrowers and investors.
Consider Unforeseen Events
The complexity of the whole process may be affected by unforeseen circumstances. These include natural disasters, pandemic restrictions, and changes in laws.
Unforeseen events could affect your capacity to travel, the value of your assets, and demand for your services, among others. Therefore, you must always have a contingency plan.
Entering into an M&A can cause massive changes in the business. But it can drive growth further and withstand potential headwinds. With proper preparation, deals can be successful. The business may expand and get more opportunities in the market.