M vs. A: Is a Merger or Acquisition Right for You?
When we talk about M&A, we’re really talking about two distinct concepts – mergers and acquisitions.
If your company is merged, it is integrated into another, larger business. In contrast, if your business is acquired it may continue to operate as a standalone business under new ownership.
Identifying whether a merger or acquisition would be better for your business depends on your company’s circumstance. It takes judgement to determine what’s right for your business, but looking at common seller scenarios can help you come to the most logical conclusion.
Seller Scenarios: When to Consider a Merger
I need access to an existing customer base in order to grow.
Are you a relatively small company or a start-up that is struggling to grow? Merging with another company operating in the same market offers an exciting opportunity to boost sales by gaining access to their customer base. You’ve built a product that many of those customers want, so it makes sense to merge your product into their core system.
I am too small for an acquirer to consider me as a “standalone” business.
One of the biggest M&A myths is that acquirers will only look at companies with a minimum threshold for gross revenues. Today, many smaller acquisitions are being done, and several of those deals are mergers. If your business is too small to be considered for a standalone acquisition, many acquirers, including Volaris Group, will consider integrating small businesses into existing complementary businesses.
My market is shrinking, and I need to defend myself against customer attrition.
Times change, and sometimes industries go through rough patches. If you are experiencing attrition due to customers going out of business, joining forces with similar companies can help insulate you from the pain of a shrinking market. This provides for the benefits of scale in sales and marketing, R&D, and customer support to continue providing great products and services to the market.
Seller Scenarios: When to Consider Acquisition
My business is a market leader or has the potential to become a market leader.
As acquirers, generally, if we feel a business can grow and gain a sustainable position in a market, we’re happy to “leave it alone.” In fact, we prefer to keep companies with a sustainable position as standalone entities. This allows companies to continue building upon their brand recognition and work closely with their customer niche.
I can see myself doing my own M&A in the future.
Acquiring companies with complimentary technologies may allow you to gain access to their customer base and expand your offering to your existing customer base. If you have a strong drive to become a market leader, growth through acquisition is one of the quickest ways to make it to the top. At Volaris Group, we help our companies do their own acquisitions when the time is right to grow in this way.
M vs. A: Coming to a Reasonable Conclusion
Given that it can be difficult to assess your own business’ circumstances, you may want to speak to others within your organization as well as friends or family to get a clearer picture.
Once you have a clear understanding of where your business is and where it has the potential to go, you can begin considering if a merger or acquisition is better for you.
You can also check with your potential acquirer’s references. Ask them if they were merged in or acquired and find out how the deal affected their business.