M&A

Weighing the Pros and Cons of M&A

As companies increase their value and continue to do as well or better than projected, many will start to consider mergers and acquisitions (M&A’s). Generally, this strategy can further increase the value of the company and keeps shareholders happy. However, before you jump straight into a M&A, it is important to understand the pros and cons and what it might mean for your business.

Some of the Pros to Consider

Some of the general truths to M&A’s are that your consumers will generally see an increase in the quality of your products and may also see a decrease in the cost. This is usually due to the ability to purchase the necessary materials in larger quantities with bulk discounts.

The existing infrastructure of the companies will allow for expedited expansion and upgrades to facilities or processes. When companies consider a merger, they should realize an increase in their profits. These profits can then be put back into the company and will result in increased research and improved efficiencies.

The Risks of an M&A

As one company takes over another, employees are often more concerned about their job stability. This can be a critical factor to consider, and removing the wrong employee can undermine an entire division of an office. Make sure that you maintain key staff that can continue to offer valuable services after the merger has been completed, and thoroughly vet any planned terminations.

Expect an initial dip in the stock. M&A’s can be frightening for the stock market. Many companies experience an initial drop in the stock price, but as the merger balances and the company gets everything on track, the price will usually rise again. On the other hand, a  poorly managed merger may never recover from the drop in stock price, and even worse may not regain its proper balance.

Overview

If you are considering an M&A for your company, it can be an exciting opportunity that is full of promise but make sure that you carefully balance all aspects of the change. Companies that haven’t thought through the entire process can often find themselves in a worse position than they were before the merger.

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