Study: Merger and Acquisition Activity Strong in 2018 and Promising for 2019
Mergermarket.com recently released its 2018 study of merger and acquisition trends for 2018. Merger and acquisition activity was strong in 2018 despite political uncertainties, market volatility, and international trade tensions. Merger and acquisition globally activity exceeded $3.5 trillion in value and was about 11.5% higher than 2017. In the US, deals were up over 15% in 2018 over 2017 in terms of market value (though the actual number merger and acquisition deals dropped by a raw total of 82). See PDF of Mergermarket.com report here. The merger and acquisition prospects for 2019 also appear promising. Thus, 2019 may be a good time to explore options for your business. An experienced San Diego corporate attorney can help if you are seeking to expand or find yourself a willing or unwilling target of merger and acquisition activity.
There are many good reasons for a business to pursue a merger or acquisition deal, some more obvious than others. The most common reason is to expand market share. There are two general categories here. Second, a simple merger and acquisition or a horizontal merger increases sales and profits by simply expanding market share. The increase in sales and profits is expected from the mere act of acquisition. A firm with 20% of the market acquires a firm with 5% of the market. A competitor is eliminated and there are now more sales and profits. A second variation is often called a synergistic merger. The firms increase market share by combining, but the increase in sales and profits is intended to come from economies of scale and other techniques that can reduce costs and aid profitability. For example, two firms, each having 20% of a given market can combine and now have 40% of the market. That might be good in and of itself, but that 40% share can potentially be expanded by cost savings and efficiencies such as:
- Redundant layers of management can be eliminated
- Supply chains can be consolidated and enhanced
- Efficiencies in the business methods of one business can be applied to both; conversely, less than optimal methods used at one firm can be eliminated
- Customer service and delivery can be standardized
- And more
Other Reasons for Merger and Acquisition Activity Include:
- To enter new markets: As used here, “markets” include the concepts of geographic, product and delivery markets; entering new markets is related to but conceptually different than expanding market share within an existing market; the buzzwords here tend to be diversification and finding new revenue streams
- To acquire exploitable assets: Sometimes market growth or diversification is accomplished through use of a new technology or a geographical location or a new process and sometimes, merging your company or acquiring another is the only means of gaining access to the exploitable asset
- Supply-chain or delivery cost efficiencies: Sometimes growth and profit enhancement can be achieved by acquiring a key supplier or a key outlet for one’s product; these are generally called vertical mergers
- Defensive Merger & Acquisition activity: Here acquisition or diversification is undertaken to prevent foreseeable future erosion of market share (or maybe to control the erosion); this may also be a means of transitioning the business away from a failing or declining market into a growth; Netflix and Blockbuster are the examples here; the former succeeded, the latter went bankrupt
Whatever the reason, mergers and acquisitions can be very effective and useful for growing and protecting a San Diego business. Of course, business these deals are complex, even among small businesses. The purchase/sales agreement alone will be complex along with the due diligence requirements. Other issues will include financing, assets and inventory, employees and key management, regulatory compliance and more. You will need a trusted corporate attorney with experience in merger and acquisition transactions.
Contact San Diego Corporate Law
For more information, contact attorney Michael Leonard of San Diego Corporate Law. To schedule a consultation, contact Mr. Leonard via email or by calling (858) 483-9200. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal.