Mergers and acquisitions are popular options for businesses around the world. Not only do they allow stakeholders to grow into areas of the market they have yet to reach, and augment their business with a fresh dose of insight, expertise, and a wider network, but they also signal a significant step forward to competitors.
They’re also very complicated, and take plenty of time to get right. Companies need to discuss the matter for a significant amount of time, performing due diligence and working through the finer points of the deal before an agreement can be reached. On both sides, corporate solicitors will need to invest a lot of time and expertise into reaching a conclusion that benefits everyone, and the businesses at stake.
Here’s what you need to know about mergers and acquisitions in the UK.
What is the difference between a merger and an acquisition?
If two (or more) businesses are joined together to become one entity, then this is referred to as a merger. This usually takes place through an exchange of shares, and means that, following the merger, the once-separate companies operate under one name in the public’s eyes.
Acquisitions are a little different. An acquisition typically refers to a deal where one business takes over another. This can look quite similar to a merger, since the end result is a single entity operating (often) under a single roof and brand identity, but the structure of the transaction can entail a range of unique financial, cultural, and strategic consequences.
What are the benefits of mergers and acquisitions?
The main benefit is increased scope. A merger or acquisition means that the businesses involved scale up rapidly, and enjoy a far greater market share than they did as separate entities. This means a new competitive edge – one that is boosted further by stronger financial resources, a larger team, and a much longer client list.
What’s more, risk is diversified, management on both sides has access to new, top talent, and the workplace culture is able to benefit from fresh perspectives on common pain points.
What are the risks?
The biggest risk is that a lack of due diligence could lead you into a close arrangement with a business that is not as good as it seemed. Financial issues, unhappy clients, or poor staff retention could mean that the new business represents a millstone to your business’s neck, rather than something capable of sharing the load.
Mergers and acquisitions can also cause a fair amount of disquiet among customers and employees. Teams can feel as though their position in the company is threatened, and a once open and productive office culture can be lost. Similarly, customers may worry that the change will impact the service they receive from you – or the amount of time you invest into them. Communication is the key to circumventing these issues, but they can still cause issues.
This can lead to a more significant rift between the two businesses. Upper management needs to be able to get along and work toward a shared goal but, at times, this relationship can start to feel strained.
How your business responds to a merger or acquisition will depend on many, many different factors. Work with your corporate solicitor to ensure the entire process is serving you and your business, and go into the process with your eyes open – not just to the risks, but to the potential, too.