{"id":17499,"date":"2024-02-15T08:25:08","date_gmt":"2024-02-15T13:25:08","guid":{"rendered":"https:\/\/hingemarketing.com\/?p=17499"},"modified":"2024-02-15T16:57:14","modified_gmt":"2024-02-15T21:57:14","slug":"mergers-and-acquisitions-as-part-of-your-growth-strategy","status":"publish","type":"post","link":"https:\/\/hingemarketing.com\/blog\/story\/mergers-and-acquisitions-as-part-of-your-growth-strategy","title":{"rendered":"Mergers and Acquisitions as Part of Your Growth Strategy"},"content":{"rendered":"

As a growth strategy, mergers and acquisitions have become popular for companies looking to expand into new markets<\/a>, gain a competitive edge, or acquire new technologies\/skillsets.<\/p>\n

M&As are especially popular in the professional services space with the growing wave of retiring Baby Boomers and a rapidly changing economy and marketplace.<\/p>\n

So what is the impact of all these mergers? More importantly, does an M&A make sense for your firm?<\/p>\n

At Hinge, we\u2019ve studied the factors that drive premium valuations and high growth<\/a><\/u> and uncovered some facts that may surprise you.<\/p>\n

Strategic M&A: Seeking a solution to a business problem<\/h2>\n

There are essentially two kinds of mergers and acquisitions: strategic and financial.<\/p>\n

A financial merger or acquisition is pursued, as the name implies, for financial reasons\u2014often to pick up some quick cash or as an investment. But I\u2019m not really interested in financial M&As for this particular discussion.<\/p>\n

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Download the M&A Guide for Professional Services Firms<\/a><\/p>\n<\/div>\n

Strategic mergers and acquisitions offer a solution to a different business problem. Perhaps the acquirer is looking to grab a new product line, add some additional facilities, enter a new market, or gain expertise and intellectual property. For professional services firms, a strategic M&A is often about gaining credibility, adding intellectual firepower, or changing the balance of power in a particular market.<\/p>\n

The bottom line is a strategic merger yields value for both the acquired and the acquiring firm. To reluctantly use a hackneyed phrase, it\u2019s a \u201cwin-win\u201d for both parties.<\/p>\n

So what does a strategic merger look like? Here\u2019s a good example:<\/p>\n

A few years back we were researching firms that received unusually high valuations. One caught my attention. It was a smaller firm that specialized in top-secret work and had deep experience and contacts in one of the intelligence agencies. This firm was sold for an eye-popping 10-times revenue.<\/p>\n

When we asked the acquiring firm why they were willing to pay such sums, their reasons were perfectly clear.<\/p>\n

The target firm offered must-have qualifications and contracts with a must-have client. Not having these capabilities would put the acquiring firm at a significant disadvantage when competing for upcoming work. In short, they believed the long-term value for the acquiring firm was much greater than the inflated purchase price.<\/p>\n

That\u2019s<\/em> a strategic merger.<\/p>\n

But when is it advantageous to proceed with an aggressive growth strategy of mergers and acquisitions, rather rely on disciplined organic growth<\/a>?<\/p>\n

When M&A Works as a Growth Strategy<\/h2>\n

Mergers and acquisitions make perfect sense in a variety of situations. For example, maybe an opportunity presents itself that requires fast, decisive action. Or maybe a competitive threat compels a defensive move to get bigger, faster.<\/p>\n

Here are five situations in which mergers and acquisitions have proven useful as a growth strategy<\/a>:<\/p>\n

1. Fills critical gaps in service offerings or client lists<\/strong><\/h4>\n

When the marketplace changes in response to external events or new laws and regulations, it can create a gap in a firm\u2019s critical offerings. It is a prime opportunity for a strategic merger.<\/p>\n

After 9\/11, the national security and defense industry lacked the relevant skills to match rapidly changing federal requirements. Companies quickly realized they would be sidelined without the skills and experience necessary to meet the new security demand. The firms with the requisite experience and relevant client lists suddenly found themselves strategically valuable and highly sought-after acquisition targets.<\/p>\n

2. Efficient way to acquire talent and intellectual property<\/strong><\/h4>\n

Many industries are seeing an acute shortage of experienced professional staff. Cybersecurity, accounting, and engineering are just a few examples that immediately come to mind.<\/p>\n

The reality is, intellectual property (IP) is the new currency of modern business. Once squirreled away and carefully guarded, IP is now actively bought and sold. For many companies, the acquisition of a firm and its IP is the quickest path to market dominance\u2014or at least a roadblock to competitive incursions.<\/p>\n

3. Opportunity to leverage synergies<\/strong><\/h4>\n

A strategic merger, if done as part of a thoughtful growth strategy, can result in synergies that offer real value for both the acquired and the acquiring.<\/p>\n

There are two basic types of M&A-related synergies: cost and revenue.<\/p>\n

Cost synergies<\/strong> are all about cutting costs by taking advantage of overlapping operations or resources and consolidating them into one entity. In a strategic M&A, a number of areas are suitable for cost-cutting, such as redundant facilities, workforces, or business units and areas of operation. But cost synergies can also result in an increase in buying and negotiating power thanks to the larger combined budget.<\/p>\n

Revenue<\/strong> synergies<\/strong> alter the competitive balance of power and create opportunities to change market dynamics, sell more products, or raise prices. Companies can take advantage of revenue synergies and make more money in many ways, including the following:<\/p>\n