There are several ways to grow a company, but mergers & acquisitions, also known as M&A, have become amongst the most popular recently, as technology and economic conditions have changed the dynamics of doing business. Mergers & acquisitions are now a growth strategy of choice for acquiring new capabilities and skill sets for many businesses, especially professional services firms.
What makes mergers & acquisitions so popular? For starters, they are much faster than organic growth. They are a quick way for a professional services firm to enter a new market, add new services, and gain valuable expertise. Perhaps a business opportunity or competitive threat suddenly appears that requires fast, decisive action. Whatever the cause, the result, they can fundamentally change a firm and its position in the marketplace overnight.
So, what kind of situations are best suited for utilizing a merger or acquisition as a growth strategy? Here are five proven examples of how firms can use a merger or acquisition as a tool to quickly grow and gain a business advantage:
Add critical capabilities or client categories
Changes in industry regulations and business trends can leave a professional services firm vulnerable to regulatory compliance issues, skill set gaps, or competitive weaknesses. A strategic merger or acquisition can quickly address these challenges and add highly visible value to the accounting firm.
Change your business plan model
Considering a different way of generating revenue? A merger & acquisition enables you to easily switch gears by integrating a company that already does business that way, helping you avoid costly missteps and delays due to inexperience.
Add valuable expertise and IP
A professional services firm is only as good as the talent and expertise it employs. Our studies have shown that firms able to demonstrate proven expertise and market leadership while achieving greater market share and profitability. Mergers & acquisitions are also an effective way to acquire and secure valuable intellectual property (IP) which has become the new currency of modern business.
Create a stronger combined business entity
A well-conceived strategic business merger provides an opportunity to create a new, synergistic relationship that will benefit both organizations. They generally come in two flavors: cost and revenue. The right merger can result in significant cost-cutting and/or money-making opportunities by taking advantage of overlapping operations or resources and consolidating them into one entity.
Combining two organizations can reduce competition in the marketplace, open new territories, offer access to new markets, expand customer bases and provide new sales opportunities – all potentially increasing revenue.
Likewise, a strategic merger can effectively reduce costs by combining facilities, workforces, and business units. Additionally, costs can be reduced by increasing negotiating and buying power through combined operations and budgets.
If your firm is considering adding a new service there are two ways to do that: internal development or external acquisition. The first can typically require more time, money, and resources than you may be willing or able to commit. So, after a potentially lengthy period of development and implementation, your inexperience with the new service may further delay revenues, never mind profitability. The second, however, if properly planned will provide an immediate value that includes a turn-key, operational new service, along with a built-in customer base and target audience.
So, should a merger or acquisition be a part of your growth strategy? That depends on your specific organization, goals, and market dynamics. Mergers & acquisitions can undoubtedly provide faster growth and business opportunities than slower, more steady, organic growth, but every strategy comes with a certain level of risk for businesses.
It’s also important to weigh the long-term considerations that will come into play after the immediate excitement and hoopla of the merger wears off. How will the merged firm generate organic growth? What other opportunities will exist down the road for the new-and-improved organization? Will the ability be there to increase both revenues and profits long-term? By answering these practical questions associated with potential mergers & acquisition opportunities you can determine whether this is the right growth strategy for your firm.