Growth Strategy
Mergers and acquisitions or M&A is a powerful tool that can transform a business almost overnight. Earlier, Anand Jayapalan had spoken about how M&A initiatives can be an efficient growth strategy. They are especially ideal for companies looking to gain a competitive edge, acquire new technologies/skill sets or expand into new markets.
Here are especially a few situations in which mergers and acquisitions have proven useful as a growth strategy:
- Fills critical gaps in service offerings or client lists: As the marketplace changes in response to new laws and regulations or external events, it might create a gap in the critical offerings of a company. This shall be an ideal time for a strategic merger.
- An effective way to acquire talent and intellectual property: In recent years, a number of industries have witnessed an acute shortage of experienced professional staff. Engineering, accounting and cyber-security are just a few examples of such industries. It also is important to understand that intellectual property (IP) is somewhat the new currency of modern businesses. IP is now actively bought and sold. For many business organizations, the acquisition of another company, its staff and IP can be the fastest path to market dominance and a roadblock to competitive incursions.
- Opportunity to leverage synergies: If a strategic merger is done as part of a thoughtful growth strategy, it may result in synergies that provide real value for both the acquired company, as well as the acquiring organizations. Cost and revenue are the two basic types of M&A-related synergies. Cost synergies are largely about cutting expenses by taking advantage of overlapping resources and operations, as well as consolidating them into a single entity. In a strategic merger or acquisition, there are multiple areas where cost-cutting can be achieved, including overlapping facilities, personnel, or operational divisions. Additionally, merging can boost cost synergies by enhancing purchasing and negotiation leverage, thanks to a larger combined budget. Revenue synergies, on the other hand, can shift the competitive landscape and open up possibilities to influence market dynamics, increase sales, or adjust pricing. Companies can capitalize on these synergies in various ways to drive greater profitability. It can help companies to lower competition, gain access to new markets and expand the customer base for cross-selling opportunities.
- Add a new business model: Diverse types of professional services firms tend to operate on distinctive business models. Some may work on billable-hours business model, while others might employ subscription models. There are also many companies that generate revenue as a fixed fee or through performance incentives. If one wants to change the business model of their firm, the simplest way to do so would be to acquire a firm that already using the model successfully. This can help steer clear of the possible missteps arising due to inexperience.
- Save time and long learning curves: Much like introducing a new business model, a strategic merger or acquisition can significantly reduce the time and cost associated with the growth strategy of a company. For instance, if a business is considering launching a new service, it may have the capability to develop and offer that service internally. However, doing so would likely require more time, money, and resources than desired. In such cases, acquiring a company that already provides this service can be a more efficient and economical option. This approach not only serves as a strategic shortcut to the desired service and expertise but also brings an established customer base and target market into the fold.
Earlier, Anand Jayapalan had spoken about how business leaders generally carry out M&A initiatives to rapidly boost the growth of their company by gaining an advantage that they would not have had otherwise.
