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Understanding Merger and Acquisition
Merger and acquisition are words commonly used in the business referring to joining of two or few business entities in forming a new enterprise. Merger is applicable when two enterprises of equal strength and size join together in forming a single entity.

The stocks of both companies are also joined into one. On the other hand, acquisition happens if a larger firm purchases a smaller firm. This mode of acquiring another company is a form of buyout that could be a result of hostile bid or friendly union. If a smaller company is acquired by larger firm, the former ceases the existence while the larger company continues its trading of stocks.

The union of SmithKline Beecham with Glaxo Wellcome in 1999 is a good example of merger thus both firms became GlaxoSmithKline. On the other hand, it is difficult to categorize mergers and acquisitions due to many variables that affect its success or failure. Merger is categorized into conglomerate and congeneric mergers. Conglomerate merger involves joining of unrelated businesses or industries while congeneric merger is the union of firms with similar economic activities and within the same industry.

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Merger and Acquisition – The Pros and Cons
Obviously, the main reason of upholding merger and acquisition is to enhance the shareholder value more than the sum of the merging companies. Likewise, merging of companies help in growing profitably. This process of improving the profit can be accomplished through synergy. It is done by analyzing the economies of scale and eliminating duplicate functions. This process may result in acquiring new technology, reduction of staff, market expansion, enhancing the capacity of raising capital and improving the industry visibility.

Merger and acquisition is a business option of saving a company from financial trouble such as bankruptcy. However, before getting into this option it is important to ensure that both companies adhere to the rules and regulations regarding this process of joining companies. Proper documentation should be presented and the stakeholder’s concerns should be addressed before the deal is finalized. It is because all the stakeholder’s issues and company debt will be shouldered by the new owner once the deal is closed.

Why Merger And Acquisition Does Fail?
Evaluation of merger and acquisition candidates is done fast that is why the opportunity of testing the compatibility is at bay. This is one of the reasons why union of two or more firms fails due to inadequate understanding about the compatibility of the partners.

In this sense, it is necessary to have deep understanding about the individual strength and weaknesses between the partners before finalizing a deal. Another reason of M&A failure is because of cultural incompatibility. Generally, culture affects the company including its background and management.

Thus, the formation of policies, practices and values procedures is also based from the inherent culture. As a result, some companies are flexible while others are operating in a strict rules and regulations. Likewise, due to cultural incompatibility one company may employ formal interactions and operations while others may choose the informal way. It is important to settle these differences in order to avoid failure of merger and acquisition.

In the same manner, merger and acquisition also fails due to differences in strategy. As much as possible before deciding to merge or acquire other business firms, it is important to know and study the strategies each company is following. Keep in mind that differences in strategies will surely bound to failure of union of two or more organizations. Strategic incompatibility is a result of mental inflexibility that might result to failure. That is why before finalizing a deal it is necessary to come up with a common corporate strategy in order to avoid failure.

Merger and acquisition may also fail due to imbalance in brand strengths. Individual business has its own brands that they preserve with extraordinary pride. The brands are the biggest asset that involves sets of values and esteem that they follow. That is why no firm is agreeable to sacrifice its brand values in favor of another company. In this sense, to become successful in the union, it is important to avoid competition instead follow a harmonious approach of choosing the best brand.

The union of two or more companies may also fail if the management of the acquiring company will not give assurance to the personnel of the purchased company. Keep in mind that the personnel are the main asset of a company and losing talents would mean to failure of the union. In the same manner, knowledge and talent redundancies may also result to failure of merger and acquisition. In this sense, it is necessary to observe proper balance of talent and knowledge so that proper synergy will be implemented.

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How to Ensure Success in Merger and Acquisition?
Therefore, in order to ensure success in merger and acquisition, company managers should observe few steps while carrying out the process. The first thing to do is look for a consultant that has knowledge and experience with this kind of business venture. The consultant can help in planning the strategies to avoid failure. Likewise, hiring consultants can help in determining the various steps in merging or acquiring business firms.

In addition, you should also consider the potential risks to the business, legal, financial as well as operational aspects of both parties and the new company. As much as possible, the manager should give due diligence so that no single step will be overlooked. Likewise, it can also help to keep realistic expectations for survival. This means that synergy should be observed in all the combined departments in order to boost the revenue, profitability and productivity.

Keeping in mind all the information cited above can help in dealing with the ever challenging merger and acquisition. Always remember the factors that can cause failure.

This process is very significant but the new company can only move forward if the leaders are committed on employing the process. Proper planning is very important especially when starting the process. Indeed, merger and acquisition can make or break a business.

 
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