Mergers and acquisitions are an excellent strategy for companies seeking to penetrate new markets, become more competitive, or instantly access new technologies. Particularly in manufacturing, M&A offers significant value, and the post-COVID M&A bonanza is currently booming. But not all M&A deliver the promised return on the investment. Indeed, M&A can be a significant waste of money if you’re not strategic about your goals. M&A only works as a growth strategy if you choose deal partners who are well-positioned to support meaningful growth. Here are five scenarios in which that can happen.
Rapidly acquiring talent and IP
Some sectors in manufacturing are suffering from an acute shortage of labor. Factor in the value of quality intellectual property, and you can see how a merger could quickly accelerate growth in your company. The acquisition of a well-trained team is incredibly valuable—especially if they bring with them valuable IP and the knowledge of how to use it.
M&A fills gaps in client lists or services
Sudden changes in the marketplace—witness COVID-19—can create sudden gaps in a firm’s services and client base. These gaps leave space for a valuable merger. Consider, for example, how post-9/11 regulations required the defense industry to adapt with new skills. Emerging technologies also inspired a manufacturing boom, for companies that were prepared. Companies that had the right experience and clients became infinitely more valuable, even as everyone else floundered.
Building new synergies
Synergies for both companies can offer value to each, if you think carefully about M&A as a growth strategy. There are two approaches here: revenues and costs. Cost synergies help reduce expenses by capitalizing on and consolidating resources. Revenue synergies shift the competitive balance of power by changing market dynamics, raising prices, or selling new products. If a merger offers the opportunity to penetrate new markets, close some plants, reduce competition, or expand your customer base, it may have synergistic value.
Make better use of time
Time is a finite resource, and arguably the most valuable resource we have; you can’t earn more of it. The right merger can help you save significant time. Consider a firm that’s weighing adding a new service or product to its offerings. Adding this organically can take months or even years. It demands significant resources, possibly bureaucratic red tape, and a lot of ingenuity. But adding someone else’s successful products and services to your existing approach requires only that you go through the process of M&A. Your investment comes pre-tested, allowing you to continue growing your core business.
Adding a new business model
Manufacturing companies run the gamut in terms of business model. If you can add a new, proven revenue-generating model to your existing approach, that offers additional security and revenue. It’s a lot easier to incorporate someone else’s tried and true method than it is to develop your own, and this is where mergers offer exceptional value.