The Wonderful World of Corporate Mergers
I frequently encounter small and medium sized business owners who are seeking to make it to the next level. They are focused on expansion by organic growth or by some combination of building a new physical location and R&D. It is fun to watch the lights come on when I remind them about mergers and acquisitions.
Innovation, more efficient operations, increased market share and gaining advantage over competition are all reasons business owners want to grow their companies. When organic growth does not support expansion or it is unwise with existing resources, a merger (or acquisition without cash) of an existing company can be the ideal solution.
A few variations of mergers to contemplate:
A horizontal merger would combine the resources of two identical companies. Ideally, costs lower and efficiency increases. Considering that competition is reduced, anti-trust legislation would apply, but there are countless horizontal small and medium business mergers that would not be subject to such rules.
A vertical mergers happens by joining two different aspects of a production process or two complementary products or services within a buyer-seller relationship. This merger allows the resulting company to offer a wider range of services or products to all its customers.
A congeneric merger would combine two companies which are in the same industry but which are not directly in competition with each other, such as insurance and stock brokerage. The result, again, is a wider range of services and products for both existing customer bases and frequently innovation.
A conglomerative merger is the joining of two business that have nothing or very little in common. The end game is merging of resources and new customer bases.
A merger means that there is a history of operations, a customer base already at hand and reliable income - not to mention the wherewithal to implement expansion and see return immediately.
Inorganic growth by mergers offers reduced risk in every way. This is unlike the uncertainty and time investment required by starting a company from the ground up and relying on organic growth to reach goals. In addition, investors will be more attracted to established-business scenarios, as the proposals are drawn up on real numbers instead of guesswork.
I remind business owners that mergers are a great way to quickly see increased shareholder value. I also speak to many individuals who are contemplating business ownership, but who seem stuck in the overwhelming complexities of starting a business. An acquisition would be the ideal way to jump into the adventure of small or medium business ownership, or to accomplish business growth in a measured and predictable manner.
