Types of Successful Acquisitions

01 July, 2014

While every company involved in a merger or acquisition endeavors to ensure that it will be profitable, many of these transactions are not as successful as the companies involved would have liked.

Certain companies that have been through multiple acquisitions, such as IBM, Cisco, Johnson & Johnson and SABIC, have used their experience to perfect strategies for successful acquisitions. In order to prepare for a successful M&A transaction and create future value, companies would be wise to follow the example set by these companies in order to develop effective strategies of their own.

Common Problems in M&As

Both before and after a merger or acquisition, companies are frequently unsure of exactly how to maximize the value of the acquisition. In some cases, skills and technologies required for a successful transaction are not mastered quickly enough, and the company's revenue suffers as a result. In other cases, companies are simply unaware of how to create value following the transaction.

Creating Value

In order to maximize the creation of value from the transaction, companies need to use time-tested strategies that other experienced organizations have discovered. Companies should analyze, evaluate and compare a variety of strategies and their possible effects. In general, the acquiring company's rationale for the transaction should align with one of the strategies below:

1. The merger or acquisition should improve the performance of the target company.

Acquisitions with the goal of improving the target company's performance can be successful, especially if the company has low margins to begin with. This type of acquisition usually involves margin improvement through reduced costs and is common among private equity firms.

2. The merger or acquisition should remove excess capacity from the industry.

Combining mature companies with recent entrants can reduce excess capacity within an industry, thus leading to better productivity. In most cases, this type of acquisition is most beneficial to the seller's shareholders.

3. The merger or acquisition should accelerate market access.

In many cases, small companies don't have the resources necessary to promote and distribute their products efficiently. Acquisitions with the goal of accelerating market access can solve this problem by combining a larger company's expansive resources with the innovative products of a smaller business.

4. The merger or acquisition should decrease costs related to skills and technologies.

Some acquisitions are successful because they give the acquiring company access to needed skills or technologies. These transactions are most successful when they reduce the cost or the time involved in obtaining these assets.

5. The merger or acquisition should help winners develop their business.

A final type of successful transaction involves identifying a company that has potential when it is early in its lifecycle and acquiring it before it achieves growth. This type of acquisition allows the acquiring company to cash in on the potential of the smaller business.

Simplify Acquisitions 

Regardless of your goals for an acquisition, a thorough due diligence process is essential to the transaction's success. ShareVault provides a secure, cloud-based solution that allows companies to share confidential corporate data with potential acquiring organizations. ShareVault is consistently ranked as extremely secure, user-friendly, easier to deploy, and more cost-effective than its competitors. In addition to offering bank-grade security and granular document access control, ShareVault offers detailed reporting of who has seen which pages of which documents, when, and for how long. Thousands of companies have used ShareVault in 45 countries worldwide facilitate more than $25 billion in deal transactions. Visit www.sharevault.com today to learn more.