Mergers and acquisitions are designed to increase profits and productivity while reducing expenses and waste. Below explores some of the most basic things that everyone should know about mergers and acquisitions.
How They Impact Employees
After mergers and acquisitions occur, employees are often impacted the most. In fact, most employees associated layoffs with these transactions because the new owner is focused on systems efficiency and departmental downsizing. This can produce anxiety and stress, so many companies engage in strategic human resource planning. This means that they focus on maintaining harmony and engaging employees through retraining and redeploying to available positions.
When it comes to management, there may be disagreements over the direction that newly formed departments should take or what the new business objectives should be. These problems are overcome through executives guiding management through the planning and decision making processes.
Business Mergers and Acquisitions
Despite the fact that they are usually mentioned together, these two terms are not synonymous. When one company takes over another company and establishes itself as the new owner, the transaction is called an acquisition. The target company legally ceases to exist and the buyer’s stock continues to be publicly traded. When two relatively equally-sized companies combine to form a new company, the transaction is called a merger and is considered to be less invasive and aggressive.
Regardless of the reason, these transactions produce shareholder value through creating a more efficient, competitive, and cost-effective company. Professionals, like those at Carter West, know that sometimes, strong companies will buy out other companies to eliminate competition, but other companies simply want to establish a better market share.
There are two main motivations for companies to make business acquisitions. The most important reason is to address a strategic gap in the company’s people, product, resources and capabilities. For example, vertical integration is when the company acquires strategic key elements of their target supply chain, such as buying a transportation company or manufacturing center.
- A forward vertical integration would be when a company that produces products buys a transportation company to move their products.
- A backward vertical integration would be a sales company that expands on the production path through buying a manufacturing center.
Service-based companies may vertically integrate to offer beginning and finishing services, such as a company that lends money to people and also owns a collection agency.
Overall, mergers and acquisitions are proven ways to become bigger, achieve market domination and take advantage of economies of scale.