With increased stiff competition from technologically powerful companies and gristly economic times, small companies are struggling to stay ahead of completion and maintain their sectorial position and the only way to counter this is through organic or inorganic means of growth.
Business growth has been curtailed by lack of adequate funding, withdrawal of shareholders and revolution in business operations. Some of the organic strategies implemented by poorly performing business include product development or enhancement, acquisition of tech-savvy individuals, market expansion, employee training, reduction in production costs and of course internet targeted marketing.
Inorganic strategies applied are in most cases the last resort to save a crippled business and include asset expansion through mergers, acquisitions or take over. In an acquisition or take over, assets belonging to the acquired company are in most cases declared redundant or auctioned off on online auctioneering platforms such as Bidsuite.
These inorganic strategies are not void of risks. Employees are not the only affected parties in this but the effects spread as far and wide to the suppliers and customers. Acquisitions are defined as one company buying another and taking over operations,and there is no exchange of stock.
The acquired companies are often liquidated, or they divert to other business ventures. Even though mergers and acquisitions are implemented to uplift struggling businesses, the other reasons are to expand their market share, improve efficiency in both production and labor and increase their bargaining power.
Type of Mergers
1] Horizontal Mergers
These mergers happen between companies in the same industry, the same level of production and distribution. For example, a food processing firm merging with another food processing firm. This translates to increased market share, cost reduction,and market expansion.
2] Vertical Mergers
Vertical mergers are characterized by a firm acquiring an input firm such as a major supplier to reduce the production costs.
3] Conglomerate Mergers
These type of mergers are derived when two firms from entirely different industries merge to diversify their business operations.
4] Employee Implications
Staff reductions and layoffs are the significant effects of mergers and acquisitions. This does affect not only low and middle-level staff but also the management staff.
Top-level staff become the most affected because they earn more. One of the main reasons for M&As is to reduce operating costs.
Some may prefer to succumb to lesser roles and reduced responsibilities while others leave altogether. CEOs are also affected but are sent off with hefty package deals.
On the bright side, employees in the acquired firm or the new merge with excellent skills and attractive portfolios may land promotions.
5] Shareholders Implications
Shareholders in the acquired firm are in a better position to benefit compared to shareholders from the acquiring company.
Under a purchase deal shareholders in the acquired firm get vast amounts of money through the acquisition while those from the acquiring side suffer due to the initial deposit paid and debts incurred. In the long run, the value of their shares also depreciates.
6] Assets and liabilities Implications
A merger is characterized by new firms in partnership sharing assets and liabilities. In contrary, the acquisition means that the acquiring company shoulders the burden of debts and in most cases liquidate acquired company assets or auction them off at industrial auction sites.
7] Competitors Implications
Mergers and acquisitions increase the purchasing power of the new company and the production levels also rise. This means that they can meet market demand and through product enhancement initiatives stay ahead of the competition.
8] Company Performance Implications
All employees from the two firms that have formed a merger may wish to assimilate their new colleagues into their work and social culture. This may bring division,especially where employees from the dominant firm deem themselves superior. Consequently, this leads to poor work relations and the company performance is put at risk.
A strong M&A should have high regard for transparency in terms of assets in place, liabilities, any legal proceedings and finances. Informing employees of a possible merger or acquisition is essential especially where staff redundancy is expected.
Lack of disclosure before the actual M&A could badly hurt a company’s human resource if skewed information is spread. Legal representation is also very vital in an M&A to ensure both parties understand the full responsibilities and implications of the agreement.