The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or in other ways help a growing company in a given industry grow rapidly without having to create another business entity.
The prevailing passive approach to finding merger/acquisition candidates is through referral marketing – contacting referral sources such as lawyers, accountants, bankers, etc. in the hope that they will know of and refer client companies that are interested to merge or be acquired by another company.
Unfortunately this approach has demonstrated shortcomings:
- Lawyers and to a lesser degree accountants are territorial – they don’t like to give out information about their clients or even reveal who they are
- Confidentiality – they are privy to certain information that they can’t reveal
- They don’t always know who is or is not interested to discuss a possible merger or acquisition
- There’s no guarantee that all or the best candidates will be identified using this method – there may be stones left unturned
A more active approach is to develop a profile of the ideal merger and/or acquisition candidate according to some or all of the following:
- Nature of Business
- Market Definition
- Markets Served
- Estimated Sales
- Number of Employees
- Square Footage
- Year established
- ISO/TS Registration
- Export Activity, etc.
The next step is to identify the companies that fit this profile, identify the owner, then proceed to contact the owner to establish whether or not he/she may have an interest to merge, or sell all or in part. From this activity a pool of qualified candidates is developed, further discussions take place and the best win-win scenarios are identified.
Despite the goal of performance improvement, results from mergers and acquisitions (M&A) are often disappointing. Numerous empirical studies show high failure rates of M&A deals. Studies are mostly focused on individual determinants.
According to the existing literature relevant determinants of firm performance are derived from each dimension of the model. For the dimension strategic management, the six strategic variables: market similarity, market complementarities, production operation similarity, production operation complementarities, market power, and purchasing power were identified having an important impact on M&A performance. For the dimension organizational behavior, the variables acquisition experience, relative size, and cultural differences were found to be important.
By generating the largest possible pool of qualified candidates and taking the above factors into account, the quality of the result will be higher because the quantity to choose from is greater.
The active vs. passive approach guarantees the largest pool of qualified candidates and therefore the highest quality result.