The destiny of this combination, on the other hand, remains to be seen. But, have you ever considered why certain mergers succeed while others fail? The rationale is straightforward. Those mergers that occurred for the right reasons have survived, whereas those that occurred for the wrong reasons or were poorly implemented have failed.
What Is the Key to Successful Mergers and Acquisitions?
Like most things in life, there is no magic recipe for successful mergers. The core of a successful merger is encapsulated by a well-crafted plan, an adept management team, and a keen eye for detail. While strategy is vital in most mergers, cultural compatibility is the lifeblood of the newly combined entity.
- Every year, a large number of mergers and acquisitions take place. According to the IIMA institute, in 2015, the M&A landscape saw over 45,000 deals. These are estimated to be worth $4.5 trillion or more.
- The $77.8 billion acquisition of Time Warner Cable Inc. by Charter Communications Inc. in May 2015 was the biggest U.S.-based M&A deal of the year, followed by the $65.5 billion Dell-EMC merger.
The majority of these mergers are well publicized, but some are kept under wraps. But that isn’t the most essential thing. What matters is how many of them survive the test of time and how many are just remembered as a recollection. Before we go any further, let us first try to understand why mergers occur in the first place. Why do two self-contained entities join forces to form a new partnership when they can get along well on their own? It sounds like a marriage proposal. Yes, of course.
Mergers, like marriages, have a lot riding on them. At the end of the day, it’s a make-or-break issue! One blunder may result in trillions of dollars in losses, and who wants that?
What Are the Benefits of Mergers and Acquisitions?
Any merger has as its primary purpose the creation or improvement of value. These are corporate mergers and acquisitions, and the motivations are based on financial factors. Let’s take a look at some of the reasons why companies combine.
Capacity augmentation: Capacity augmentation through combined forces is one of the most prevalent reasons for a merger. Typically, firms want to leverage such a move in order to save money on expensive production activities. Capacity, on the other hand, may not just refer to industrial processes; it might also refer to purchasing a unique technological platform rather than having to construct it from scratch. Mergers in the pharmaceutical and car industries are frequently driven by capacity expansion.
Developing a competitive advantage
Let’s be honest. These days, competition is fierce. Companies will not be able to endure this tsunami of innovation unless they have proper plans in place. As a result, many businesses choose to merge in order to expand their footprints in new markets where the partnering firm already has a strong presence. In other cases, a compelling brand portfolio entices enterprises to merge.
Getting through difficult situations
Let’s rephrase the adage: “Tough times don’t last, but tough companies do.” The global economy is going through a period of uncertainty, and in difficult times, unified strength is always stronger.