M&A transactions are strategic moves that allow companies to grow, strengthen, diversify, expand into new territories, and gain competitive advantages. This article provides an overview of what M&A transactions involve, the reasons for them, and the perspectives of both buyers and sellers.

What is an M&A transaction?

M&A transactions can be either a merger or an acquisition:

• Mergers: Two or more companies combine to form a single entity. A merger seeks to combine strengths and resources to create a more competitive entity.
• Acquisitions: The takeover of one company by another. The acquisition can be done through the purchase of shares or the purchase of assets of the target company.

 

Objectives of a Transaction

M&A transactions can have multiple objectives, such as:

Synergies

• Value creation: They seek to create a combined value greater than the sum of the parts.
• Decrease risks: By combining companies, exposure to market risks can be reduced.
• Cost efficiency: Effectively combining operations can generate economies of scale and reduce operation expenses.

Competitiveness

• Develop competitive advantages: Allows companies to create advantages to take on larger competitors.
• Eliminate competition: Acquiring competitors can consolidate the market and reduce competition.

Supervival

• Financial distress: Overleveraged companies and lack of liquidity may seek to be acquired in order to survive.
• Declining business model: Companies with declining business models and lack of resilience may find M&A a solution to continue operating.
• Succession problems: Family-owned companies or those with leadership gaps might opt for sale due to lack of suitable successors.

New Market Entry

• New product/service development: Acquisition of innovative companies may open up new business opportunities.
• Access to new geographies: Buying local companies allows companies to expand internationally and geographically.

Two different perspectives

Buyer's Perspective

Buyers seek several strategic benefits:

• Revenue growth and diversification: Increase market share and diversify product or service portfolio.
• Access to new technologies and resources: Gain access to new technologies, talent, financial resources, and compete in new markets.
• Competitive advantage: Merging operations allows optimising processes/operations and reducing costs to gain a competitive advantage.
• Synergy potential: The main objective is that the combination of companies results in a value greater than the sum of its parts (i.e., 1+1=3).

Seller's Perspective

Sellers have different motivations for participating in M&A transactions:

• Maximizing shareholder returns: To obtain the best possible return for the company's shareholders.
• Need for liquidity: Companies with high levels of debt or financial distress may need to divest.
• Market adaptation: Companies lagging in market responsiveness may find selling a strategic move for survival.

Selling a company is a complex and delicate process, requiring careful planning and professional execution. Both buyers and sellers must be prepared and aligned to their strategic objectives to ensure a successful transaction. With an effective integration, companies can maximize their profits and strengthen their position in the market.

At BDO Costa Rica and BDO Interamericas we have experts in all M&A matters, contact us if you need expert advice on a purchase or sale.