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Mergers and Acquisitions as a Business Growth Strategy

Show Notes Of Podcast

What is an M&A Strategy?

M&A strategy is using the process of mergers and acquisitions to expand your business. This refers to the services your company will offer, as well as the clients, industries, and geographical areas you target and serve.

Earlier this year, in a piece on Disney’s Chief Executive Officer, Bob Iger, CNBC confidently proclaimed that Iger had successfully completed “one of the most remarkable revitalizations of any iconic American brand.”

How did Iger do this?

Using mergers and acquisitions as a business growth strategy. Specifically, by acquiring Pixar, Marvel, Lucasfilm, and 20th Century Fox. With the Pixar acquisition alone, Disney was able to bring more movies to its target audience, as well as increase its animation practices. While Disney’s M&A strategy has been successful for a wide variety of reasons, it serves as a prime example of companies using M&A to breed more success.

This pattern is not unique to Disney - we have seen similar practices at Amazon, Comcast, and P&G. These powerhouses are prime examples of leveraging M&A to generate strategic growth.

When considering these exemplars, we should note M&A usually falls into two categories: strategic and financial, with the above being prime models of strategic M&A.

Strategic M&A will often generate revenue. However, there is a larger purpose behind the merger or acquisition. Additionally, business growth is often categorized as organic or purchased (M&A). With these elements in mind, here we will focus on strategic M&A (non-organic growth), its benefits, how to build a strategy for growth, and when this growth strategy might not be optimal.

Earlier this year, in a piece on Disney’s Chief Executive Officer, Bob Iger, CNBC confidently proclaimed that Iger had successfully completed “one of the most remarkable revitalizations of any iconic American brand.”

How did Iger do this?

Using mergers and acquisitions as a business growth strategy. Specifically, by acquiring Pixar, Marvel, Lucasfilm, and 20th Century Fox. With the Pixar acquisition alone, Disney was able to bring more movies to its target audience, as well as increase its animation practices. While Disney’s M&A strategy has been successful for a wide variety of reasons, it serves as a prime example of companies using M&A to breed more success.

This pattern is not unique to Disney - we have seen similar practices at Amazon, Comcast, and P&G. These powerhouses are prime examples of leveraging M&A to generate strategic growth.

When considering these exemplars, we should note M&A usually falls into two categories: strategic and financial, with the above being prime models of strategic M&A.

Strategic M&A will often generate revenue. However, there is a larger purpose behind the merger or acquisition. Additionally, business growth is often categorized as organic or purchased (M&A). With these elements in mind, here we will focus on strategic M&A (non-organic growth), its benefits, how to build a strategy for growth, and when this growth strategy might not be optimal.

What is an M&A Strategy?

M&A strategy is using the process of mergers and acquisitions to expand your business. This refers to the services your company will offer, as well as the clients, industries, and geographical areas you target and serve.

When does M&A Work for Business Growth?

Overall, using M&A as a business growth strategy is wise since we currently live in a world where the economy and technology are ever-changing. This strategy, when executed correctly, can provide powerful results fairly quickly.

Furthermore, when acquiring a company, the buyer gains access, again fairly quickly, to pre-existing (and often successful) teams, workflows, and products.

Finally, M&A works for business growth when companies are in tune with synergies. Synergies are of the utmost importance when utilizing M&A, specifically acquisitions, to generate growth.

What are the Benefits?

As previously mentioned, using M&A for business growth helps companies make substantial strides in little time.

For instance, if we were to consider the time it might take a company to expand internally by developing new products or services and hiring and training new team members. It would often take considerably longer for the company to yield growth and financial results than it would if it acquired an existing company.

Additional benefits of using M&A for business growth include:

  • Quickly enter new markets. Historically gaining entry into a market has been known to take years (consider the networking, sales pitching….). However, acquiring a company can accomplish this goal relatively easily and quickly. 
  • Enter a marketplace with credibility. Piggybacking the previous benefit, gaining access to a marketplace alone does not equal success, rather gaining credibility in a marketplace yields true results, especially when markets can be oversaturated; true financial gain comes from being a recognizable and trusted service or product.
  • Diversify products/services. Expanding the services and products your company offers can lead to sustainability and revenue. In fact, larger companies will diversify as a way to prepare for and protect themselves in the future. This trend is seen very often in the food industry. Take for example Mars acquiring Chappell Brothers years ago or Coca-Cola acquiring Odwalla as Americans became more health conscious. 
  • Acquire intellectual property. Intellectual property refers to nonphysical assets such as copyrights, patents, and trademarks. Ideas can be turned into money making services, products, and technology. 
  • Acquire top talent. Mergers and acquisitions are a prime way of obtaining strong talent. It is essential that change management practices take place from the top down in order to retain these strong employees, which will, in turn, protect the value of the deal. That being said, when a strategic move is made, many employees understand the benefit of the decision as M&A is part of today’s business landscape. 
  • Reduce competition. The assets that come with mergers and acquisitions can help your company operate at lower costs. A direct consequence of operating at lower costs is the ability to lower prices and, therefore, reduce competition. 
  • Surprise competitors. Some practitioners believe M&A moves can help companies surprise competitors, thus giving them an advantage. 
  • More value for shareholders. M&A activity can generate more value for company stakeholders, and diversification through mergers or acquisitions can also put stakeholders’ worries at ease.

When does M&A NOT Work for Business Growth?

  • Company is too small to take on the complexities of the M&A process / has insufficient M&A experience 
  • Company is not financially stable / faces lack of funding
  • The potential deal has too many red flags and M&A risk factors 
  • Members of the M&A team are only searching for deals due to reward programs

How to Develop a Business Growth Strategy

When looking to generate a business growth strategy, the following roadmap can get you started. Again, just as with M&A playbooks, each company and each deal are different - you’ll need to tailor the guidelines and advice to your company’s individual situation. 

How to Develop a Business Growth Strategy
  1. Fully analyze and evaluate your needs and goals. 
  2. On a related note, you will need to perform a comprehensive evaluation of the current market and business world. It means to consider the economy, customers, competitors, as well as your current business and its operations. Be sure to question each aspect of your evaluation to make sure your information is accurate and not idealized. 
  3. Consider why a combined company would breed more success from M&A (and be specific here as you answer this question). 
  4. Clearly identify the synergies you’re looking to capture. Is this (M&A) the only way to capture them?
  5. Do you have a diligence team and diligence tools ready to go?
  6. How do you plan to successfully integrate the new company? How will you retain key employees (remember employees are the ones currently making the company successful)? How will you focus on culture, and what change management practices will you put into place?
  7. Examine how you will align your M&A practices with your growth strategy.

Merger and Acquisition Strategy Example

While many companies utilize mergers and acquisitions as an expansion strategy, a few powerhouses stand out.

Take Google for instance. In total Google has acquired 238 organizations. Each move has allowed Google to either break into new markets or acquire new technology.

Google acquired Youtube

Perhaps most famously, even for those outside of the industry, Google’s M&A activity is best  known for its purchase of Youtube. This move was highly successful as it allowed Google to venture into the entertainment realm in a credible way (not to mention YouTube is worth even more today so the move was highly profitable).

Google acquired Android

Additional growth took place when Google bought Android back in the early 2000’s, as it was able to gain access to new technology, specifically Android's operating system. Similarly, when Google won the bidding war to purchase Waze, it was able to block Facebook from entering the map game and it was able to secure a spot, though somewhat uniquely, in a social network.

Google acquired Fitbit

Finally, more recently, Google acquired Fitbit, which similar to its Youtube move, allowed Google to venture into a new market - this time wearable devices. Not only did this move catapult Youtube into the market of wearable devices rather quickly, it also allowed it to do so with credibility. Fitbit already had a variety of products and a loyal public following.

Overall, while Google clearly has an intelligent strategy and looks for strong strategic fits, it is also willing to take risks. 

Final Thoughts

Ultimately, using M&A as a growth strategy can allow companies to grow faster than they would organically by entering new markets, thus eliminating or surprising competitors and acquiring talent and technology. When companies are prepared for the intricacies of M&A, specifically integration, they can leverage synergies for financial gain as well.

Of course, poor integration planning, weak communication, and cultural clashes can ruin the best deals. Even some of the companies mentioned above have had deals that have failed to reach their potential and maximize synergies. Without robust M&A practices throughout each lifecycle of the deal, an M&A strategy will not yield true, lasting growth.

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Earlier this year, in a piece on Disney’s Chief Executive Officer, Bob Iger, CNBC confidently proclaimed that Iger had successfully completed “one of the most remarkable revitalizations of any iconic American brand.”

How did Iger do this?

Using mergers and acquisitions as a business growth strategy. Specifically, by acquiring Pixar, Marvel, Lucasfilm, and 20th Century Fox. With the Pixar acquisition alone, Disney was able to bring more movies to its target audience, as well as increase its animation practices. While Disney’s M&A strategy has been successful for a wide variety of reasons, it serves as a prime example of companies using M&A to breed more success.

This pattern is not unique to Disney - we have seen similar practices at Amazon, Comcast, and P&G. These powerhouses are prime examples of leveraging M&A to generate strategic growth.

When considering these exemplars, we should note M&A usually falls into two categories: strategic and financial, with the above being prime models of strategic M&A.

Strategic M&A will often generate revenue. However, there is a larger purpose behind the merger or acquisition. Additionally, business growth is often categorized as organic or purchased (M&A). With these elements in mind, here we will focus on strategic M&A (non-organic growth), its benefits, how to build a strategy for growth, and when this growth strategy might not be optimal.

What is an M&A Strategy?

M&A strategy is using the process of mergers and acquisitions to expand your business. This refers to the services your company will offer, as well as the clients, industries, and geographical areas you target and serve.

When does M&A Work for Business Growth?

Overall, using M&A as a business growth strategy is wise since we currently live in a world where the economy and technology are ever-changing. This strategy, when executed correctly, can provide powerful results fairly quickly.

Furthermore, when acquiring a company, the buyer gains access, again fairly quickly, to pre-existing (and often successful) teams, workflows, and products.

Finally, M&A works for business growth when companies are in tune with synergies. Synergies are of the utmost importance when utilizing M&A, specifically acquisitions, to generate growth.

What are the Benefits?

As previously mentioned, using M&A for business growth helps companies make substantial strides in little time.

For instance, if we were to consider the time it might take a company to expand internally by developing new products or services and hiring and training new team members. It would often take considerably longer for the company to yield growth and financial results than it would if it acquired an existing company.

Additional benefits of using M&A for business growth include:

  • Quickly enter new markets. Historically gaining entry into a market has been known to take years (consider the networking, sales pitching….). However, acquiring a company can accomplish this goal relatively easily and quickly. 
  • Enter a marketplace with credibility. Piggybacking the previous benefit, gaining access to a marketplace alone does not equal success, rather gaining credibility in a marketplace yields true results, especially when markets can be oversaturated; true financial gain comes from being a recognizable and trusted service or product.
  • Diversify products/services. Expanding the services and products your company offers can lead to sustainability and revenue. In fact, larger companies will diversify as a way to prepare for and protect themselves in the future. This trend is seen very often in the food industry. Take for example Mars acquiring Chappell Brothers years ago or Coca-Cola acquiring Odwalla as Americans became more health conscious. 
  • Acquire intellectual property. Intellectual property refers to nonphysical assets such as copyrights, patents, and trademarks. Ideas can be turned into money making services, products, and technology. 
  • Acquire top talent. Mergers and acquisitions are a prime way of obtaining strong talent. It is essential that change management practices take place from the top down in order to retain these strong employees, which will, in turn, protect the value of the deal. That being said, when a strategic move is made, many employees understand the benefit of the decision as M&A is part of today’s business landscape. 
  • Reduce competition. The assets that come with mergers and acquisitions can help your company operate at lower costs. A direct consequence of operating at lower costs is the ability to lower prices and, therefore, reduce competition. 
  • Surprise competitors. Some practitioners believe M&A moves can help companies surprise competitors, thus giving them an advantage. 
  • More value for shareholders. M&A activity can generate more value for company stakeholders, and diversification through mergers or acquisitions can also put stakeholders’ worries at ease.

When does M&A NOT Work for Business Growth?

  • Company is too small to take on the complexities of the M&A process / has insufficient M&A experience 
  • Company is not financially stable / faces lack of funding
  • The potential deal has too many red flags and M&A risk factors 
  • Members of the M&A team are only searching for deals due to reward programs

How to Develop a Business Growth Strategy

When looking to generate a business growth strategy, the following roadmap can get you started. Again, just as with M&A playbooks, each company and each deal are different - you’ll need to tailor the guidelines and advice to your company’s individual situation. 

How to Develop a Business Growth Strategy
  1. Fully analyze and evaluate your needs and goals. 
  2. On a related note, you will need to perform a comprehensive evaluation of the current market and business world. It means to consider the economy, customers, competitors, as well as your current business and its operations. Be sure to question each aspect of your evaluation to make sure your information is accurate and not idealized. 
  3. Consider why a combined company would breed more success from M&A (and be specific here as you answer this question). 
  4. Clearly identify the synergies you’re looking to capture. Is this (M&A) the only way to capture them?
  5. Do you have a diligence team and diligence tools ready to go?
  6. How do you plan to successfully integrate the new company? How will you retain key employees (remember employees are the ones currently making the company successful)? How will you focus on culture, and what change management practices will you put into place?
  7. Examine how you will align your M&A practices with your growth strategy.

Merger and Acquisition Strategy Example

While many companies utilize mergers and acquisitions as an expansion strategy, a few powerhouses stand out.

Take Google for instance. In total Google has acquired 238 organizations. Each move has allowed Google to either break into new markets or acquire new technology.

Google acquired Youtube

Perhaps most famously, even for those outside of the industry, Google’s M&A activity is best  known for its purchase of Youtube. This move was highly successful as it allowed Google to venture into the entertainment realm in a credible way (not to mention YouTube is worth even more today so the move was highly profitable).

Google acquired Android

Additional growth took place when Google bought Android back in the early 2000’s, as it was able to gain access to new technology, specifically Android's operating system. Similarly, when Google won the bidding war to purchase Waze, it was able to block Facebook from entering the map game and it was able to secure a spot, though somewhat uniquely, in a social network.

Google acquired Fitbit

Finally, more recently, Google acquired Fitbit, which similar to its Youtube move, allowed Google to venture into a new market - this time wearable devices. Not only did this move catapult Youtube into the market of wearable devices rather quickly, it also allowed it to do so with credibility. Fitbit already had a variety of products and a loyal public following.

Overall, while Google clearly has an intelligent strategy and looks for strong strategic fits, it is also willing to take risks. 

Final Thoughts

Ultimately, using M&A as a growth strategy can allow companies to grow faster than they would organically by entering new markets, thus eliminating or surprising competitors and acquiring talent and technology. When companies are prepared for the intricacies of M&A, specifically integration, they can leverage synergies for financial gain as well.

Of course, poor integration planning, weak communication, and cultural clashes can ruin the best deals. Even some of the companies mentioned above have had deals that have failed to reach their potential and maximize synergies. Without robust M&A practices throughout each lifecycle of the deal, an M&A strategy will not yield true, lasting growth.

m&a software signup


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