Skip to main content

Mergers and acquisitions happen regularly in business with figures released last month showing 367 took place between October and December 2023 alone.

These strategies allow a business to expand into new markets, acquire new technologies or skills and to increase their competitive position. You may hear the abbreviation M&As being used by business owners.

Many small business owners are approached about mergers and acquisitions. But what are the differences? And should you merge your business or acquire another?
Here is what you need to know…

What are mergers?

A merger is when two companies, usually of similar size, become owned and operated by a single company. Both businesses surrender their stocks to a new company, which replaces the original companies. Some may choose to operate under a new name, while others may decide to use one of the company names.

What are acquisitions?

Acquisitions are when one company takes over another company. Company One takes over Company Two and they operate under the name of Company One. In this instance, Company Two ceases trading and it cannot trade under its previous owners. In effect, it is a complete buyout of the business.

Which one is right for my business?

The thought of being ‘bought’ by a larger competitor or merging with one might appear exciting. It could be financially advantageous for you, but don’t rush into a decision. Here’s why…

  • Is your business ready to grow? Whether you are being acquired, want to acquire another company or are considering a merger, this is your first decision. Consider how you will fund the transaction and what liquidity is required to carry it out successfully.
  • What is the value of your business? If you fail to value your business correctly, you risk being sold short. Valuing a business is fairly simple – but the biggest issue is deciding which valuation method you’ll use. We’ve looked at how to value a business in a previous blog, so check it out to see which works best for you.
  • Do the companies fit? Due diligence is essential for any business decision. And that is the case when it comes to mergers and acquisitions. You need to research the company you are considering merging with or acquiring. From finance and its daily operations to debts, tax position and employee contracts, leave no stone unturned. Missing out a contractural issue or not realising your target company is having legal issues could cost you in the long run.

Strategic and financial mergers and acquisitions

There are two types of mergers and acquisitions. One is financial the other is strategic.

Financial mergers or acquisitions are usually to generate quick money or as an investment. It is often carried out to save costs of two companies or to increase efficiency. The goal is to enhance the financial benefits and efficiencies of the companies combining.

Strategic acquisitions and mergers are carried out to achieve specific strategic objectives. This includes expanding into new markets. Such deals are done for the long-term benefits combining the companies can achieve.

Get mergers and acquisitions advice

There are lots of pitfalls as well as advantages to merging with or acquiring another company. Without proper due diligence or an understanding of the business finance compliance required, you could end up regretting the decision.

But getting good advice to prepare a strategy or to raise the necessary capital is essential. Once you understand your position, it makes it easier to decide whether merging or acquiring another business works for both parties.

Getting an experienced chartered accountant means your merger or acquisition has been subject to professional checks and balances. It can help prevent you from making a mistake. Contact our team today if you’re considering a merger or acquisition.