Nowadays, the merger of companies is the leading technique for the successful development of one’s own business. Almost all successful companies use it today. So, how exactly this process takes place, and what are the advantages of mergers and acquisitions with examples, we will consider below.
Why do companies choose M&A business strategy?
In the distant 90s of the last century, there was a change in the course of many companies. The concepts of flexibility and agility receded into the background, and instead of these well-established principles, new ones came: expansion and growth. All large companies sought to find an additional source of expansion of their activities. It was during this critical period that the concept of “merger and acquisition” (M&A) appeared.
The meaning of M&A deals is to get the maximum amount of all the benefits from cooperation. In an example, it looks like this. Two organizations combine their efforts and create one, while they optimize personnel, reduce the number of employees, due to this first step, there is a tangible saving of material resources.
The M&A of companies have their characteristics, which differ from each other. In a merger, there is always one dominant company that initiates the process. Such a corporation has a large capital and the necessary capacities. In an acquisition, a corporation that conquers smaller organizations acts as follows. The absorber redeems all the shares of the company from the shareholders who created this enterprise.
The business benefits of M&A transactions
M&A transactions can be traced back to five main business opportunities:
- The first opportunity offered to companies is to gain know-how. This includes both the expansion of existing and the development of new patents and products as well as the mastery of new technologies and processes.
- The second chance for companies is restructuring. This means that departments or divisions with weak sales or profits are outsourced. In 2012, Volkswagen took over Porsche’s automotive business for €4.5 billion. This transaction could be shown as a restructuring measure and the sports car manufacturer could pay off its debts from the plan to take over the VW group.
- The rationalization potential is seen as a third chance. This means that double work can be saved, high costs for research and development avoided or better conditions can be negotiated with suppliers. In this case, the so-called economies of scale are used. In 2006, telephone giant AT&T took over BellSouth for €65 billion. This deal was the largest in the American telecommunications industry. The takeover was expected to eliminate 10,000 jobs. This saved unnecessary costs for double work and strengthened competitiveness.
Creating brand value through M&A deals
M&As have always played an important role in global business. But are they solid strategies for increasing brand value? Among the top 20 brands with the strongest brand value growth in recent years, according to Interbrand, are acquisition brands such as Google, IBM, Oracle, HP, and Philips. However, there are still brands that target their existing businesses such as Apple, Nintendo, ADIDAS, and Audi.
Like most strategic initiatives, M&As can be used effectively to drive a business. Looking at the world’s most valuable brands of 2011, Interbrand concluded that companies benefit enormously from focusing on building their brands. The issue is not that the deal creates brand value better than other alternatives. The main thing is to look at M&A through the lens of brand value creation to understand whether M&A and spin-offs make sense.