April 2, 2015

When companies have M&A options

For some companies, the decision to merge or be acquired is an easy one to make. For example, a small firm with very limited resources might need to be purchased for it to have any hope of reaching its growth objectives. On the other hand, a firm in a narrow market might see a competitor with whom it makes perfect sense to merge equitably. 

For other businesses, however, there are options. Perhaps a medium-sized company has the wherewithal to stand on its own for the foreseeable future. It doesn't need a "parent" company to swoop in and bankroll future endeavors. Being acquired would have its advantages, but it's neither a necessity nor the most obvious next step. For companies like this, they might have the freedom to sell or merge, and determining which course of action requires some institutional soul-searching. 

Generally, an acquisition by a larger company is a move toward diversification, at least on the part of the buyer. For the acquired property, that might not be true if a new parent company expects the business to continue its specific focus from a development standpoint. However, the buyer might choose to leverage that narrow focus across a larger set of applications for the whole company. According to Investopedia, it's important to evaluate the pros and cons of each property. 

"The most used word in M&A is synergy, which is the idea that by combining business activities, performance will increase and costs will decrease," the site explains. "Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses."

With the guidance of M&A advisor, companies can arrive at the decision that best accomplishes their missions.