In February 2021, Shell Energy confirmed that they’ve reached a multi-million pound agreement to acquire 465,000 phone and broadband customers from the UK Post Office’s telecoms division.
But what exactly are mergers and acquisitions and how do they help businesses?
Broadly speaking, an acquisition is either the purchase or division of a company. Some are paid in cash, stock, and can even be purchased using debt. This is known as a ‘leveraged buyout’.
Acquisitions are often carried out by a company in a similar line of business, who then use the purchased business to benefit their own. This can be either by using the acquired business’ brand, or purely to control more of the marketplace. On the flip side, some acquisitions can be done in opposing fields to diversify their offering. By nature, acquisitions can be friendly, or unfriendly (otherwise known as a hostile takeover).
Whilst similar by nature, mergers differ slightly form of acquisition. By definition, a merger is ‘the joining together of two separate companies or organizations so that they become one.
Simply speaking, a merger is a purchase deal where both CEOs agree that joining together is within the best interest of both companies.
Why is it important to work with experts in mergers and acquisitions?
Due to the complex nature of M&As, they can be a risky strategy – especially if companies lack market dynamics and vision of the local business environment. To be successful, the merger or acquisition needs to be strategic, effective, and focused. To build up this expertise takes years of practice, so it’s always best to reach out to leaders in the field for the best chance of success.
From deciding on your strategy, to funds, to due diligence, to even considering factors such as the office culture – there is a lot that could go wrong if you choose to take on the risk yourself.
So what are the benefits of mergers and acquisitions?
For those brave enough (under the right guidance), M&As have many benefits. We’ve rounded up our top 5 reasons to consider a merger and acquisition below.
- Acquiring staff or skills – many of the most sought-after professionals are working for top companies, leaving smaller businesses a skills gap. One of the best ways to combat this is to merge. That way, you can gain access to the same talent as your competitor.
- Accessing funds or assets – rather than build a state-of-the-art new production center, if a competitor already has one, why not combine forces? Beneficial to both businesses, it can significantly save overheads.
- Increasing market share – quite simply, acquiring the competition increases your market share. A great example of this is Santander. First arriving in the UK in 2004, Santander rose to become one the largest banks in the world, through a series of strategic M&As.
- Diversification – by acquiring a business in a different niche, you can begin offering these services yourself. It’s often much quicker and easier to do than starting from scratch!
- Reducing costs – a problem shared is a problem halved. From increased marketing budgets to more buying power, mergers can help to reduce overheads, leaving more money in the bank.
Mergers and acquisitions can be hugely beneficial when done correctly. If you’re willing to take the risk, make sure to hire a professional to reduce the possibility of things going wrong.