In the first half of the economic year 2020, the m and a occupies about 3.6 trillion. But in the second half, the world was affected by the effects of covid 19 disaster. The reflection of the disaster makes interest rates low, and the equity market may remain high, stockpiling cash, etc. The world’s cash flow has reduced, increasing the country’s GDP.
The reasonable rationale behind the strategy is M and A design. The M and A system take many companies. The M and A’s are shifted the state of business due to the global pandemic. Some brands need to expand, and others have an idea to acquire. According to Harvard University’s Christensen, 90% failed to plan in the M and A strategy. It does not give value to the business but instead provides cost savings and financial synergies. We have discussed the process and the method used in the industry.
The acquisition involves the purchase of one brand which was offered in the market by another brand. The process takes place straight forward between the two companies. The process mainly takes place in smaller companies. It is the type strategically redefined for the acquired company. It becomes the new business reality and direction for acquired companies.
Brand Merger :
Merger brands are about transitioning equity, shifting perception, migrating customers and processing it carefully. It must be strategic with the full support of business, Marketing, and brand management resources in the company when any mistakes take, which makes part of losing customers. At the time, the competitor can steal the market share.
Advantages of Brand Merger :
The main advantage of the brand merger is
- Improve the target product and services.
- It may accelerate market access for the target products.
- It may access the technology at a lower cost.
- The merger makes it possible to explore the business worldwide.
- It may improve competitive behaviors.
What are the 4types of m and a?
The type of merger and acquisition are used based on the smooth transition.
1. Horizontal :
The company acquired the same competitor in the field in the horizontal merger, which may produce the same products. It may increase the production of the company. When the company’s products are high, the company has to increase production at a low initial investment.
The best example of a horizontal strategy is the acquisition of Instagram by Facebook. Facebook bought Instagram for about $1 billion in 2012. It may reduce the competitor in the field, increase the market share, reduce competitors and gain an audience. Both companies work on social media as image-sharing services. Facebook expanded the business by acquiring the company, but it was estimated to be about $100billion in 2017, which is about 100times profit of Facebook in just six years.
2. Vertical :
When the company merges with two or more companies that produce a supply chain to manufacture the product for the company, both companies make a different outcome but have the same outlet. It increases the accuracy and efficiency of the product. Based on the acquisition, the company’s share value has increased. The cost of byproduct production has decreased.
The best example of vertical m and a is the Car industry. When the car manufacturer merges with a tyre manufacturing company, it increases the company’s revenue by boosting product sales to the competitor.
3. Concentric :
In this concentric, companies in the same or related industries do not offer the same products. Both companies have similar production processes, distribution channels, and marketing to similar clients for easy integration. In that, the company produce fridge can acquire the washing machine production company. Both companies have the same clients in the industry but different product lines. It may be easy to target and increase the number of clients.
The best example of a concentric merger is the banking giant Citicorp. The company was merged with financial service companies Travelers group in 1988 for about $70 billion. Both companies have different product lines and meet the same customer.
4. Conglomerate :
When the two companies work on different product line, the company do not merge but works in its way. The benefits for the operating company are low when compared to other strategies. The low profit increased the company’s share value and net value.
An example of a conglomerate is amazon acquired whole foods for $13.4billion in 2017. Both companies work on a different line. Amazon has increased its extent in both food and online retail store.
Six Steps for Analysis :
- Analysis of the migration place for one year before the migration.
- Find the identity between the two brands, creating genuine customer value. Focus as the new start.
- Migration plans estimating for the next two years.
- The new brand logo has to be developed, which is a combination of the two symbols, names, strategy and story.
- After the fresh start, the company mainly focus on the old customer. Communicate with the old customer.
- Time is an essential thing in migration. Manage the migration time in the acquisition process.
Reason for Fail in M and A Strategy :
The main reasons for strategy failure include people, culture, technology process, vision, etc.
1. People :
When the employee who works in the company cannot adapt to the other brand, the employee’s role is changed, and the administration stage collapses. It may decrease the chance of work efficiency and the possibility of failure.
2. Culture :
When the company actively works in a particular location and adapts to a specific culture. After the merger, the company migrated to another place, and the employee needed help to adapt to the culture. It may increase the lack of employee power and the chance of failure.
The other reason for failure is the technology process, vision and encompassing.
Steps for Success of M and A :
- After the acquisition, emotions are high. The company need to research the target buyers. Equity has the most robust portfolio in the brand, with a high intent to buy.
- The company has to focus on simplicity. The product production should be clear and straightforward. The biggest mistake is too many brands.
- Create a new corporate brand after a merger. When the small acquisition may impact the corporate brand narrative.
In the past, 70-90% of the M and A transactions were expected to fail. From 2017, more than 80,000 transitions took for the worth of 11 trillion. According to Deloitte’s result, 90% of the transaction died. The failed business does not have a robust business model, increasing the chance of failure. The acquired company must change the business model to increase the likelihood of success.