The concept of business mergers and acquisitions is gaining more and more people who want to use this strategy. It allows you to expand the company’s representation by absorbing and consolidating several businesses into one new corporation. The companies that previously existed and operated separately are transformed into one new corporation with different systems of operation, workspace organization, concept, or even field of activity.
Mergers and acquisitions are a multifaceted tool. It allows not only to increase the size, representation, team composition, and financial capital of the company but also to increase the number of attracted talents and promising personnel. However, some nuances prevent businesses from utilizing the full potential of M&A. Therefore, below we will take a closer look at the features, motives, and considerations of the M&A concept, the benefits of using it, and how to use VDR for M&A in the right way.
Features, Motives, and Considerations for the Concept of M&A
In its article, Forbes noted that such an active growth in the number of M&A deals “…can be attributed to many factors, perhaps primary among them the desire for investors to spread their risk…”.
The term merger refers to the process of combining companies, which results in the creation of a new company that is the legal successor, and acquisition – the purchase of one company by another. Therefore, depending on the process, the general status, representation, role, and legal capabilities of each company will also differ.
Companies that decide to take advantage of the M&A opportunity should pay special attention to the process of organizing the transaction. After all, such strategic decisions require special attention, careful evaluation, and due diligence of each party. Therefore, companies choose how they want to organize mergers and acquisitions. However, virtual data rooms for mergers and acquisitions are becoming increasingly popular. It is convenient, secure, and well-organized.
Advantages and Disadvantages of Mergers and Acquisitions for Business
Mergers and acquisitions can bring companies some advantages and opportunities for business development. These include:
Realization of economic benefits. These include such advantages as increasing the scale of business representation, consolidation of capital, and cost reduction as a result of large production volumes;
High competitive advantage among other industry representatives. Since M&A can increase the financial size of a new company with consolidated capabilities, the owners will be in a stronger position to continue their business.
Attracting new talent and fresh perspectives. Every company needs a “fresh look” at its operations and working methods. At the same time, almost every employee is attracted to brands with a well-known name, clean reputation, and large size. It is M&A that can attract new talented and inspired employees to the team. They will be able to offer new solutions that can qualitatively support the business development strategy.
Risk diversification through portfolio divergence. Mergers and acquisitions allow you to divide the risk between different sources of income that will remain in different industries. This effect is achieved by diversifying products or services. At the same time, if before the M&A, companies had one source of income that could not fully support the financial aspect, then several streams allow for sustainability and efficiency in the long term.
Deloitte, one of the M&A portals, noted the potential ultimate benefits of M&A as follows:
Increasing the organizational value that can be obtained as a result of an acquisition or engagement;
Maximizing transaction value through readiness for sale;
Increased internal awareness;
The accelerated time frame for due diligence to predefined processes, tools, and resources.
It should be borne in mind that an acquisition may have some negative connotations. For example, if the takeover was friendly and was carried out with the full consent of the company, the process would be smooth and easy. But in the case of an aggressive takeover, the acquiring client simply buys out the bulk of the shares of smaller businesses without any voluntary consent. In this case, experts advise taking measures aimed at preventing a takeover or a takeover on acceptable terms.
Technological Capabilities and Advantages of VDR for M&A
Mergers and acquisitions can often overwhelm clients, as it is a very responsible process. It requires thoroughness, clarity, and high-quality systematization of documents. This is where dataroom software can help. These are specialized cloud storages that have been developed with M&A in mind and therefore have all the necessary tools for it.
A separate virtual environment improves visibility between the main participants in the process and establishes communication at all stages of the transaction. Technological capabilities allow you to track every aspect of a project or transaction, eliminating the need to regularly check each file and significantly saving time for decision-making.
The use of data rooms will allow users to gain the following benefits:
Secure storage and transfer of documents. For this purpose, developers use a combination of different means and levels of information protection.
Secure access control. Since only administrators with access to rights management can change the status of users, you can decide which files can be shown, and whether to grant editing permission.
Easy and productive collaboration. Companies planning to enter into a merger or acquisition can use virtual data rooms and avoid wasting time negotiating, offline meetings, and reviewing paper versions of documents. The combination of all these factors helps to increase the productivity and efficiency of the working dialog.
In addition, data room solutions can eliminate time-consuming and redundant work from the team’s agenda. Well-designed and populated virtual data rooms specialize in doing the extra work for you. To do this, you should choose a virtual space with the appropriate functionality, such as automatic deletion of duplicate requests, full-text or filtered search, automatic indexing, simultaneous processing of certain files, and so on.
All of this will not only facilitate the conclusion of M&A transactions but also increase the efficiency and accuracy of their execution at all stages – from the initial to the final stage.