Successful companies seek to merge with other successful companies to make the enterprise stronger and more profitable. Strategic business decisions are necessary when considering a company for a potential merger. Here are some factors to consider regarding Business Mergers And Acquisitions:
1. Market Share: You need an analysis of the market share the business enjoys that would be beneficial to your enterprise. A highly dominant company will add cash flow and lower risk to your company’s bottom line. The “cash cow” approach has an advantage of buying more market share for your company or it could make strategic sense to add another market for your firm to diversify your income stream.
2. Profitability: The profit margins and the free cash flow determine the value of the potential merger candidate. Examining the Profit and Loss Statement can reveal strengths and weaknesses of the firm’s operation. Can the profit margin be improved with economy of scale? Perhaps you can streamline the “back office functions” that will reduce the overhead of the merger candidate and help increase cash flow. Be sure to consult with your business mergers and acquisitions advisor before making any decisions.
3. Management Team: No business operates without leadership, control, and planning. Will the owner consider working with your new firm and provide the expertise necessary to expand the operation? Are there skilled managers that could be assimilated in the firm to strengthen the present management team? Will attrition occur due to the merger that may be harmful to the enterprise? These human capital decisions should not be taken lightly. Seek counsel.
4. Market Location: Your firm may be considering expanding to a new location and seeking a company that can help you achieve market penetration relatively cheap as compared to making an expansion without the merger. Compare the estimated cost of expansion vs. the cost to acquire a firm and make your decision accordingly. You should consider consulting an advisor for information on the economic climate in the desired location.
Human Factors Can Complicate the Merger
Buying a business is not an easy task. The Balance Sheet and the Profit & Loss Statement have human activity behind every number on these sheets. A purchase decision must include the human element. Ultimately, it is the employees that added value to the firm. If purchasing the firm will scare the employees out of the business, or worse yet, they could become “passive aggressive” towards their new bosses, the combined enterprise could be doomed to failure. Consult with your M & A expert before you make the leap. You could save aggravation and money with careful planning and study before making an offer.
Need a Business Merger & Acquisition consultant? Sunbelt Business Advisors has the personnel and the resources to help you make informed decisions before you buy a firm. Visit www.sunbelt-business-advisors.com for more information.
