Mergers and takeovers - a solution to many problems

Katarzyna BUDA
Transaction Advisory Manager at RSM Poland

Enterprises functioning on today's market mainly develop in an organic manner, increasing their revenues, profits as well as market position through their internal actions, such as acquiring new clients, introducing new products and services, searching for new markets and distribution channels. Organic growth requires the effective and efficient taking of decisions and strategy planning on the part of the management. That's why inorganic growth is an uniquely interesting alternative.

Organic growth entails the increase of a company's potential as a result of investments financed by the company's own capitals and debt. An undoubted benefit of internal growth is the manner of adjusting its tempo to the individual possibilities of the enterprise. The selection of this path, however, turns out to be a choice focused on obtaining results in a longer perspective and this is very time-consuming due to the fact of the individual financing of investment outlays with one's own capital or debt financing.

The building of a company in an inorganic manner, which is carried out through the takeover of other entities on the market, merging with them or buying out their assets - tangible assets, intangible assets or an organized part of the enterprise, presents itself in a totally different light. In carrying out this development path, companies in an immediate manner expand their share on the market or obtain access to a new segment, acquire new distribution channels and - most importantly - increase profits and revenues. Inorganic growth in the form of a merger or takeover is an amazing tool that allows companies to grow in a very quick manner and become competitive on the market. This is only possible however in the case of the proper selection of a companion from a similar or complementary sector, optimization of the transaction structure and - what is most essential - an efficient integration of the enterprises.

Mergers and takeovers as a rule are associated with the development of a company and some may be surprised what acquisitions or mergers have in common with restructuring processes. Restructuring often has negative associations and constitutes a complex problem, which is to help companies with difficulties. The truth is that actions in the scope of mergers and acquisitions often constitute restructuring tools as, for example, the division of a unit or the joining of companies, separation and sale of an organized part of the enterprise or its restructuring. Mergers and acquisitions are a great tool applied for the development of a company, however, they also belong to the basic restructuring operations, aimed at, among others, increasing the profitability of the unit, modifying the strategy for the purpose of improving the effectiveness of the company's operations or getting the company out of difficulties. This often entails the separation and sale of an organized part of the enterprise, finding a sector or financial investor or merging entities for the purpose of increasing their profitability and obtaining a synergy effect, cost optimization as well as the general improvement in operational effectiveness.

The operations and functions carried out within the framework of merger and acquisitions are not only an alternative for organic growth and a very good restructuring tool but is also a way to get out of the business in full or in part. Thanks to the actions carried out within the framework of mergers and acquisitions, companies can prepare for succession with success. They provide inspiration to the shareholders or stockholders who - in building up their business for years - have reached retirement age and want to get out of the business or those who are in their prime but just want to change the course of their operations and interests. There are many methods for a successful succession or handing over partial or full control. Shareholders and stockholders can sell part or all of their business to a sector investor, they can bring in a financial investor into their company or merge with another entity and transfer control while maintaining partial ownership.

In summary, we can say that the actions taken within the framework of a merger and acquisition have many applications, for this reason it is worth learning about the topic, as each person managing an enterprise directly or indirectly, will find something of interest to them.