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Dear Business Owner,
Welcome to Game Plans for Growth, our newsletter for owners
and managers. This month we focus on how a merger or acquisition could help
your business through a downturn. We hope that you find this newsletter
useful and as always would love to hear your feedback.
In a contracting market once you have restructured your
business to fit lower demand how else can you protect your business for the
future? Large corporates often look to combine with competitors to defend
their market position such as the proposed merger between BA and Iberia.
Why can't SME businesses benefit in a
similar way? With business valuations at historic lows, how
could this be an opportunity for your business?
Here are some good reasons why you should consider a
merger or acquisition, typically of a competitor:
1. Sales-force cost savings as you eliminate
duplicated sales calls
2. Head office cost savings as only one MD is
needed. This is also a key point to establish at the start of
negotiations as otherwise it can lead to
a disruptive culture clash.
3. Streamline operational efficiency as
duplicated locations can be closed.
4. Refocus development costs as a combined
and larger development budget can be targeted more effectively.
5. Removing capacity from the market so
allowing sales prices to firm up. However businesses need to
watch that competition requirements are still adhered to.
6. A competitor going into administration
could create a great opportunity to acquire products or customers very
cheaply.
7. Opportunity to win key people such as
niche salesmen or specialist buyers or knowledgeable technology managers
8. Chance to acquire strategic contracts to
re-enforce market position. However you will need to review contracts for
the ability to assign control.
9. An acquisition or merger can often be a
more attractive proposition to potential funders, so making bank
fundraisings more likely or equity fundraisings less dilutive.
10. To acquire a new technology and
so regain your business' competitive edge.
In addition Mergers are often done as 'paper
deals' with shares being used instead of cash for the
consideration; so the cash outlay of a Merger could
be limited to due diligence and deal costs.
The British Airways' chief executive, Willie Walsh must
have identified many of these advantages when he remarked of the proposed
BA merger with Iberia: "The aviation landscape is changing and airline
consolidation is long overdue. The combined balance sheet, anticipated
synergies and network fit between the airlines make a merger an attractive
proposition, particularly in the current economic environment."
Which company would make a good Merger partner for your
business? Look for a respected competitor of a
similar size where the cultural fit is good. Also ask
yourself, would the strengths of a combined business make
for a more successful operation?
In any deal you will want to strike the right valuation
and to reduce your risk as much as possible through commercial due
diligence, deal structure and thorough but well managed legal
process. Business owners would therefore be wise to seek
advice from trusted partners such as an experienced vfdnet part
time Finance Director.
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