The decision of whether to merge with or acquire a company should not be a case of looking for short term gains, companies should always thoroughly plan their future. Any strategic initiative must only happen if it's supported by logical approaches and a clear vision of the future business performance. So, the key to a successful M&A transaction is a well-defined strategy prior to the deal.
Often, M&A transactions happen as part of growth strategy because by acquiring or merging, companies are more likely to survive, succeed in the market, and build their innovation portfolio. M&A activity heavily relies on external conditions but has its own behavior pattern. For example, despite predictions that M&A deals would continue to decline, due to uncertainties surrounding the US elections, the Brexit vote, and weaker sales growth, transactions have started picking up, which is a good sign for the economy. According to the EY's Global Capital Confidence Report Barometer, the forecast for 2017 M&A activity looks positive, with 75% of US executives planning an M&A transaction in the next 12 months. Knowing the outlook is important, as the available data from the past and upcoming deals can help to identify potential risks and opportunities.
To choose the right type of transaction it is essential to have a picture of the overall business environment. Some of the elements that make it a good time right now is the intensifying digitization and the increasing influence of disruptive technology - both of which are capable of accelerating the achievement of business goals and fostering the creation of new business models. Additionally, if a company's growth can't be achieved through the traditional means (economy, supply chain, innovation), inorganic growth through M&A can become a good alternative.
If we look at current deal activity, according to The Street, the number is up by 66% from last year, and the aggregate value has declined by 36% - indicating that today, companies tend to go for smaller transactions instead of chasing blockbusters. However, the 'big-buyer' activity is not completely silent, with AT&T having just merged with Time Warner in a deal worth $108 billion (including assumed debt).
When deciding the transaction type to launch, each party has their own agenda. The current market tendency towards 'smaller value but bigger number'. This may be due to increasing market competition (especially in tech), and often, acquisition is the easier and faster way to eliminate a competitor. With mergers, for example, companies with different industry experience, can build an entity that is more capable of creating value and driving revenue, than if the two separate organizations were operating separately.
Companies should always remember that M&A strategies cannot be used as tools for growth or strategic positioning alone. Parties must come up with a tangible definition which suits their particular vision and the current state of the business. The desired outcome needs to be outlined prior to the deal, because if parties fail to come up with a plan on how to create value beforehand, they need to either review their strategy or look at whether it would be a productive deal.
The more experience companies have in M&A activities, the better chance they have to succeed in the them. Experience allows them to compare past deals, mistakes, and successes to maintain a strategic focus for future transactions. If the future strategic actions are well-thought out before the deal, then it is more likely to be successful and create the value that both sides of the party are looking for.