Sell, Acquire or Merge?

Sell, acquire or merge?

What have Lehman Brothers, HBOS and Manchester City got in common?

All three have recently been taken over; Nomura buying Lehman Brothers and Lloyds taking over HBOS following financial crisis at both. Abu Dhabi United Group have purchased Manchester City who are not themselves in financial difficulty but their previous owner, former Thai PM Thaksin Shinawatra, is facing accusations and potential financial problems of his own.

Now all of these are big businesses, two of them multi-billion pound banks whilst the Manchester City investment runs into hundreds of millions of pounds in the initial purchase and subsequent funds being pumped into the club, but it is not only large enterprises that can benefit from a takeover or merger.

For many businesses the current economic climate is presenting difficult trading circumstances and sadly this will threaten the existence of an increasing number. Tight financial control, cut backs on spending and rigorous credit control are the principal tools businesses will turn to in order to weather the storm but a strategic decision to either acquire or be acquired may also represent the best opportunity to not only survive but emerge stronger.

Clearly this seems most beneficial if you are the acquiring party, particularly now. Identify a business which is finding things tough, needs some additional finance but possesses something highly attractive to you; their client base, geographic market, services or products which dovetail ideally with your own, plus the opportunity to benefit from economies of scale and reduce the overheads of the acquired business. And in all likelihood it can be snapped up for a bargain price.

But what if it is your business which finds itself in a vulnerable position? Can this still be an attractive proposition?

It can if you take control of the situation, and do so early, when the business is still financially viable and able to continue independently. Look at the strengths of the business, think about what would make it attractive to others. Seek out businesses that not only have the resources to secure your financial position but fit well with your own beliefs and philosophies. Approaching them with a proposition, selling the benefits you can bring to a combined business and setting out realistic, plausible reasons for seeking a merger may not exactly put you in the driving seat but will place you in a far stronger position than waiting until the situation forces you into a sale or even administration.

And this is, perhaps, a rare opportunity for a genuine merger to take place. Generally speaking there is no such thing as a merger, one business always emerges as the dominant partner absorbing the other into itself; there be some concessions made to give the appearance of an equal partnership but ultimately the end result is a take-over.

Where previously two (or even more) businesses may had no appetite for merging or acquiring, (whether because one lacked resource to purchase the other, fears of job losses in a combined entity or a whole host of other, very real and valid reasons not to do so), there may now be common ground to come together and build one leaner, financially secure entity in a genuinely even partnership rather than continuing as separates ones with uncertain futures

Topical Tip

No take-over or merger should be entered into lightly; it is possibly the most significant decision you will ever make in your business but with tight credit and finance conditions set to continue for at least the short term it does pose a viable option for both growth and securing the future which should not be discounted. The key lies in acting early; identifying your strengths, values and objectives in order to identify suitable partners to approach from a position of strength

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