Whether you are planning: to sell a business, to merge business(es), to gain a valuation or to acquire additional business(es); our team can make your operational goals a reality!
Kaizen is a Japanese term for continuous improvement, some would say it’s business 101 or just common sense; the thesis of the concept is continuous improvement or more bluntly ‘If you don’t change you die’. Thus, it’s no surprise restructuring activities are at the core of so many efficient businesses.
The “So-called ‘fortune 500’-the largest U.S. corporations. Only 70 of the firms on the original 1955 list of 500 are on today’s list; some 2,000 firms have been on the list at one time or another” (DePamphilis, 2012).
Intro to Mergers & Acquisitions
There are numerous reasons M&A activities occur and the theories vary over time. Two main theories are for improvements in either operational or financial synergy.
The main goal of operational efficiency could be multi-faceted; some goals may be: increased revenue, decreasing cost/good, improving managerial practices, etc.
Economies of Scale– distributing fixed costs over increasing production levels (e.g. Machine shop A produces a lower cost product by merging with Machine shop B)
Economies of Scope– using specific skill-set or assets currently utilized in producing related products & services (e.g. Honda has expertise in internal combustion engines; in addition to cars Honda now develops motorcycles, snowblowers, etc)
The main goal of financial efficiency typically refers to the impact of M&A on the cost of capital for the purchaser. “The cost of capital could be reduced if the merged firms have cash flows that do not move up and down in tandem” (DePamphilis, 2012). Through evaluating the cash flows of the companies, we can deduce if a M&A solution would serve well for the firm’s good or service. A good for example may be complementary like cereal and milk, or substitutes like milk, almond milk, soy milk. The good/service may be interdependent/independent/dependent on each other; thus, the cash flows will give a good idea of the relationship of more than 1 firm. There are many theories/reasons for Financial M&A including:
Strategic Realignment (i.e. Changes in: technology, regulation)
Buying Undervalued Assets
Alternatives to M&A
Alternatives to M&A have shown “little compelling evidence to fare any better” (DePamphilis, 2012). There are many other avenues to M&A including:
Solo ventures (re-investing excess cash)
M&A represents one of several ways of executing business plans. Businesses are relative and the method to use depends upon preference of management control, risk, as well as a range of other factors. “Failure rates among alternative strategies tend to be remarkably similar to M&A…Abnormal returns to acquirers of private firms frequently show larger returns than public M&As” (DePamphilis, 2012).
The decision for M&A presents many difficulties for a business owner(s). Our team will gladly assist you in determination of this complex decision given your firms goals! Contact Nash or Bud to set-up your free initial consultation, we look forward to assisting you!
~ by Nash Carey
Source: Mergers, Acquisitions, and other Restructuring Activities. Don DePamphilis PH.D. 2012