Growing your business quickly can be a challenge. However, growing your business through a vertical merger or acquisition can be done with relative speed, and at a relatively low cost. A vertical merger is about merging with a business in your industry: your suppliers or your customers. For example, a car dealership may want to merge with a small independent insurance broker (to improve onsite insurance services) or a bakery that acquires or merges with a coffee shop (to help sell its baked goods).
There is a difference between mergers and acquisitions. A merger is often viewed as a more 'friendly' action; a decision amongst both parties to merge together. An acquisition is considered more 'hostile'; a take-over of one company by another. While mergers are most often considered defensive actions to protect market share and position; and acquisitions are often considered offensive actions, this is not always the case. Some businesses look to be acquired if the owners want to retire or sell out. Other businesses chose to merge in order to grow quickly and efficiently. Both mergers and acquisitions have challenges and opportunities in terms of managing the changes within the organization.
Your business might face the challenges of not only acquiring and/or merging two businesses but also of merging two cultures into one group; of laying-off staff in overlapping or duplicate roles (who goes, who stays); of looking for, and implementing, synergies to improve operating efficiencies; of reducing expenses and increasing revenues; of communicating changes with customers; of strengthening your brand's reputation; and more. The challenge with a merger or acquisition is that you will need to weigh the pros and cons of decisions quickly, while still keeping a focus on running your business. In deciding whether or not to merge or acquire a company, you will need to assess the costs of managing change and the impacts on your business against the benefits of accelerated growth, reduction of costs and potential for improving market position.
While vertical mergers are about merging with suppliers or customers, horizontal mergers are about merging with, or acquiring, your competition. In a horizontal merger, you might want to buy your competitor to expand your product offering quickly; or to acquire their proprietary product information; or to grow your market share. Or you may be interested in the branch locations that they have (and you don't) which allow you quick entry into their markets. Consider horizontal mergers if you have an aggressive sales plan and/or an aggressive diversification plan (with diversification, a vertical merger might also work). You need to always keep in mind your strategic plan and your business objectives; but be open to opportunities that are presented to you (for example, a long term supplier wanting to downsize the operation by selling off a division of the company).
Growth through merger or acquisition is inorganic growth and it can be expensive. Make sure that your investment in an acquisition or merger (there are high costs to both) has enough payback to make it worthwhile. Hire a specialist in merger or acquisition accounting to provide a review of your target company before you complete the deal. Organic growth is internal to the business and occurs through sales, product development, production efficiencies, and other internal improvements. There are many key success factors for a successful merger or acquisition. Some of these success indicators are: your business is capable of the change management process that will result from the merger or acquisition; the merger or acquisition aligns with your business plan and is a cost-effective method of increasing your market share; the merger or acquisition provides an opportunity to significantly reduce your costs through synergies and new economies of scale; and the merger or acquisition allows you to improve customer service or to satisfy unhappy customers (for example, by buying a supplier you shortened the lead time required to manufacture the end product).
During the past decade, mergers and acquisitions have become very popular. Not all of these mergers and acquisitions have been successful; the costs have outweighed the benefits. A vertical merger strategy can have a higher opportunity for success than a horizontal merger or an acquisition because often the management of change is more successful and less adversarial. As a strategy for growth, use a merger acquisition checklist to consider vertical mergers. - 31963
There is a difference between mergers and acquisitions. A merger is often viewed as a more 'friendly' action; a decision amongst both parties to merge together. An acquisition is considered more 'hostile'; a take-over of one company by another. While mergers are most often considered defensive actions to protect market share and position; and acquisitions are often considered offensive actions, this is not always the case. Some businesses look to be acquired if the owners want to retire or sell out. Other businesses chose to merge in order to grow quickly and efficiently. Both mergers and acquisitions have challenges and opportunities in terms of managing the changes within the organization.
Your business might face the challenges of not only acquiring and/or merging two businesses but also of merging two cultures into one group; of laying-off staff in overlapping or duplicate roles (who goes, who stays); of looking for, and implementing, synergies to improve operating efficiencies; of reducing expenses and increasing revenues; of communicating changes with customers; of strengthening your brand's reputation; and more. The challenge with a merger or acquisition is that you will need to weigh the pros and cons of decisions quickly, while still keeping a focus on running your business. In deciding whether or not to merge or acquire a company, you will need to assess the costs of managing change and the impacts on your business against the benefits of accelerated growth, reduction of costs and potential for improving market position.
While vertical mergers are about merging with suppliers or customers, horizontal mergers are about merging with, or acquiring, your competition. In a horizontal merger, you might want to buy your competitor to expand your product offering quickly; or to acquire their proprietary product information; or to grow your market share. Or you may be interested in the branch locations that they have (and you don't) which allow you quick entry into their markets. Consider horizontal mergers if you have an aggressive sales plan and/or an aggressive diversification plan (with diversification, a vertical merger might also work). You need to always keep in mind your strategic plan and your business objectives; but be open to opportunities that are presented to you (for example, a long term supplier wanting to downsize the operation by selling off a division of the company).
Growth through merger or acquisition is inorganic growth and it can be expensive. Make sure that your investment in an acquisition or merger (there are high costs to both) has enough payback to make it worthwhile. Hire a specialist in merger or acquisition accounting to provide a review of your target company before you complete the deal. Organic growth is internal to the business and occurs through sales, product development, production efficiencies, and other internal improvements. There are many key success factors for a successful merger or acquisition. Some of these success indicators are: your business is capable of the change management process that will result from the merger or acquisition; the merger or acquisition aligns with your business plan and is a cost-effective method of increasing your market share; the merger or acquisition provides an opportunity to significantly reduce your costs through synergies and new economies of scale; and the merger or acquisition allows you to improve customer service or to satisfy unhappy customers (for example, by buying a supplier you shortened the lead time required to manufacture the end product).
During the past decade, mergers and acquisitions have become very popular. Not all of these mergers and acquisitions have been successful; the costs have outweighed the benefits. A vertical merger strategy can have a higher opportunity for success than a horizontal merger or an acquisition because often the management of change is more successful and less adversarial. As a strategy for growth, use a merger acquisition checklist to consider vertical mergers. - 31963
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To learn more about success factors for a vertical merger; diversification options, and other business strategies to build and grow your business, visit Kris Bovay's More For Small Business site.
