What Are the Main Pros and Cons of Mergers and Acquisitions Deals?

Mergers and acquisitions are more complicated than they seem and come with a large financial requirement, but if your company is able to survive the transition process, they can be incredibly beneficial to your overall success. If you are looking for M&A consulting, look no further than The Burnie Group.

When it comes to mergers and acquisitions, or M&A for short, there are pros and cons to consider prior to making any decisions.

Understanding the Concept of Mergers and Acquisitions

Mergers and acquisitions are often determined by the short-term and long-term company strategic outlook of the new and acquiring companies. Market conditions, differences in business culture, acquisition costs, and changes to financial strength surrounding the corporate takeover are all important factors that go into these decisions. If there are no significant short-term financial benefits to a merger or acquisition, you must consider whether or not the long-term advantages are significant enough to move forward. This is why M&A consulting can greatly assist any company considering the possibility of a merger or acquisition.

Pros and Cons of Mergers and Acquisitions

According to Investopedia.com, only an estimated 33 per cent of mergers and acquisitions are actually considered successful. Success, in this case, is defined by M&A that achieved a net gain from the M&A, with or without misguided M&A intent. Unfortunately, this means that an estimated 66 per cent of M&A are not successful, due to M&A intent. There are different reasons for this high rate of failure, including a relatively high risk of over-optimism about financial results following an M&A. Other potential reasons for the failure of M&A include a poor basis for decision making by company leadership, a lack of M&A consulting, failure to consider or properly incorporate the new company, weak transitional management, and the overestimation of the value of the acquired corporation.

Pros of Mergers and Acquisitions

If you are able to mitigate these risks when initiating your own M&A, you can achieve success. If the merger and acquisition allows your company to achieve a net economic advantage, despite possible conflicts of interest, short-term financial, as well as consumer disadvantages, you can see success in your own M&A. Successful M&A activity results in increases in equity valuations, larger market shares, improved operational efficiencies, and a higher industrial capacity. Engaging in M&A consulting may also increase your chances of success. Some of the major pros of M&A:

• Economically beneficial in reducing the complexity of regulatory oversight,
• Increased market share,
• Lowers the cost of operation and/or production,
• Increases global corporate competitiveness,
• Adds to industry know-how and positioning,
• Improves profitability and EPS,
• Increases financial leverage, and
• Adds to shareholders’ net worth.

Although not all of the potential pros of mergers and acquisitions may be realized by your company, these reasons are usually the root cause of a company moving forward with a plan for an M&A. The more of these pros that can be realized by your company as a result of an M&A, the more beneficial your plan of following through with one will be. When a company is able to achieve this level of success, it can lead to more stability as a corporate entity and provide for higher political influence and industry leadership for your company.

Cons of Mergers and Acquisitions

One of the major cons of a merger and acquisition is the financial costs involved. M&A comes with high legal expenses, and you have to keep in mind that the cost of acquiring a new company may not be profitable at all in the beginning. For this reason, an M&A should be a strategic corporate decision, not a tactical maneuver. M&A consulting can help you mitigate these risks if you are considering an M&A in your own future. If your company can survive the short-term cost of opportunity (which is the same cost incurred when an investment is placed elsewhere for a higher financial return), then your company may find success in the planned M&A. If this cost is not a concern and does not prevent or deter the merger or acquisition at all, the projected long-term financial benefits outweigh the short-term costs.

The Burnie Group The Burnie Group is an M&A consulting service that can help you every step of the way when determining what exactly your options are when it comes to a merger and acquisition. We have a network of over 100 top-tier consultants, who can offer you hands-on teamwork with individuals who possess industry-specific knowledge. We develop customized strategies to accelerate growth, maximize the value of mergers and acquisitions, and enhance your technology and operations. We value innovative strategy and the continuous pursuit of operations excellence in everything that we do. If you are ready to begin the process of your own M&A, contact The Burnie Group today at contact@burniegroup.com or 647-490-3397 to learn more. We would love to help you weigh the pros and cons of your own merger and acquisition to discover what plan makes the most sense for your company.