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Mergers can be a significant element of any business’ successful growth strategy. Companies looking to enter a new market, gain a broader reach in their current market, enhance their offering of products and services, or get a leg up on the competition, could look to mergers as a potential solution. Of course, the potential risks and rewards should be carefully weighed prior to any agreement.
Risks to Consider Before Making a Deal
- Cultural clash between firms: Cultural compatibility is a critical determining factor in the success or failure of a merger. When you have two clashing work cultures, they don’t see eye-to-eye, the messaging is off, and chances of a successful merger become slim.
- Unbalanced value-adds: A strategic merger adds value for both parties involved. When the value becomes one-sided, that is when they should re-evaluate the potential partnership.
- Lack of communication transparency: Without clear and concise communication at all stages, the value of the merger becomes lost. A lack of communication and transparency is the downfall of any potential partnership.
- Overestimating synergies: The synergy itself should not be the only reason for a merger but one of many. Overestimating the pay-off of synergies can lead to a loss for either party involved.
- Reducing costs and overhead: Successful mergers can reduce costs and overhead through shared marketing budgets, supply chain and purchasing deals, and shared technologies.
- Increased market share: The acquired business ideally has channels that become shared and benefit your own business by leading to a broader customer base and increased market share.
- Diversification of products and services: The value of the merger is increased when the acquired business has a broader offering of products and services that can be sold through the acquirer’s distribution channels and can also be more cost-effective.
Companies look to mergers as strategic moves towards growth. Without risk, there is no reward; however, the potential risks need to be weighed against the potential rewards before an agreement is made. When executed correctly, mergers have proven to be an essential component of any growth strategy of a business.