2021 was a record year for mergers and acquisitions, with global M&A volume exceeding $5 trillion, a 64 percent increase from the previous year. This trend is expected to continue through 2022, especially within the technology, finance, industrial, and energy and power fields. Undoubtedly, the decision to merge or acquire another company is more than a financial transaction—it’s a timely deal that, when led by the right group of people dedicated to a seamless transition, can optimize your business’ ROI in both the short and long term. So, is a merger or acquisition right for your business?
For some, the first question might surround the difference between a merger and acquisition. Mergers involve the combination of two companies, usually equal in size and revenue, and are managed by both parties. Acquisitions typically occur when a larger company takes over a smaller company and is controlled by one group of shareholders. The former deal is typically carried out by larger corporations, whereas the latter tends to involve middle-market entities.
The reasons businesses might merge with or acquire another are varied, but, for the majority of transactions, companies are looking to businesses combinations to maximize their market strategy. A company might merge with another because both businesses complement each other and can approach their shared market together with greater strength. For acquisitions, the larger company recognizes that the smaller business can give them access to additional markets while also knocking out the competition posed by the smaller entity.
At the end of the day, business owners must ask themselves several important questions. Are you comfortable with the other business? Will they be a good partner? Will they augment your progress? Will they work well with your team?
Answering these questions before initiating a transaction is crucial, especially considering the cost and legal framework involved in both. While typically similar in cost, the legality of each looks a bit different. Mergers combine equity, whereas acquisitions involve assets and equity, and involve additional tax ramifications. Regardless, the legal framework is multi-faceted and must be monitored with a close eye.
At the end of the day, the important thing is to find a team of experts who can communicate and execute either plan efficiently and thoroughly. Experts are able to give you best practice advice, prepare you for the road ahead and address any specific questions you may have. If the reporting aspect is making your head spin, a professional advisory firm should be there to make sure you respect the tax portion of the transaction. These individuals can also provide advice after the fact, like advising on what to do with liquid assets or what the next steps are after the IRS handles their end of the deal.
Firms like Rehmann offer a multi-tiered approach to merger and acquisition services, with a priority on education. Getting the knowledge you and your team need before, during and after a merger or acquisition is the key to a successful deal, a prosperous business and a happy work environment.
