Running a business in the UK’s present economic state can be something of a balancing act. As businesses small and large decide between hunkering down in case of downturn or opening up to maximise profits, some key options emerge – amongst which there are some especially large possibilities. To put a name to these, they are mergers and acquisitions. What exactly do they entail, though, and how would they figure in?
What are Mergers and Acquisitions?
Mergers and acquisitions (often truncated to M&A) describe major restructuring events wherein two businesses merge to become one, or one is folded into another. The exact form and shape of each merger or acquisition changes from business to business, according to a significant number of variables relating to business size, staff numbers, assets held and market stature. The motivations behind a merger or acquisition can also differ significantly – as we are about to discover.
Why Do M&As Occur?
There are a great many reasons for which a business might find itself part of an M&A process, on both sides of the coin. Mergers are often mutually beneficial arrangements that see similar businesses in a space consolidate their assets and staff – making them stronger individual businesses with a better foothold on their target market. Acquisitions, meanwhile, are asymmetrical in nature; one company buys another, folding its assets and infrastructure into itself as it sees fit.
This can happen as part of either a ‘friendly’ or ‘hostile’ acquisition, with friendly acquisitions much more common amongst smaller and mid-sized businesses. Friendly simply means that the smaller, or ‘target’ business, voluntarily acquiesces to its sale – i.e.: the owner voluntarily sells the business, and all relevant parties approve. Hostile acquisitions occur where the acquiring business buys out the target business via the purchasing of enough shares to assume majority control over shareholder votes – something which can only happen to publicly-trading businesses.
The M&A Process – What to Consider
Whatever the motivation or reasoning behind a given M&A, there are some necessary steps to follow in what is a long and complex process. For starters, the value of independent counsel and advice cannot be overstated. Each asset and company holding needs to be properly accounted for, something which can only be guaranteed with third-party auditors; similarly, data protection lawyers can be crucial to retain, in order to ensure the safety of existing personal and consumer data as ownership has passed.
When it comes to acquisitions, the acquiring company needs to think carefully about their position and about the state of the market at the time of offer. Buying out a business is a major investment, both up front and over time. Naturally, this is a risk, and especially so in times of potential recession. Depending on the shape of the target business, too, the acquiring company could inadvertently find itself shouldering more debt or cashflow problems.
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