cnoiark.icu

The terms “mergers” and “acquisitions” are frequently used interchangeably. On the contrary, the two terms are distinctive. Acquisition happens when a company takes over another and labels itself as the new owner. Conversely, a merger refers to two entities of the same size who conjoin and move forward as a single company, rather than stay separately owned and managed.

In the ever-changing world of mergers and acquisitions (M&A), value creation has never been more important in recent years due to the growing industry trends and opportunities, technological disruption, and the need to shift to new business models to stay competitive.

In 2017, the global M&A market lost its firm standing compared with 2016. However, in 2018, the market grew and remained strong, with public transaction volumes reaching $4.1 trillion. It was the third-highest year for the M&A industry. Research also shows that the larger companies get, the more they use M&A to grow shareholder value.

A study shows that M&A transactions offer positive abnormal returns for businesses and shareholders. Professional staffing organizations in industries like IT, digital/creative, and healthcare, among others, continue to see rampant demand from buyers and investors.

Improving cash flows, establishing firmer balance sheets, reducing debts, and positive global growth—these are some of the key drivers of M&A, which contribute to overall profitability. Let’s take a deep dive into how businesses can get the most out of value creation during M&A transactions.

Maximizing Shareholder Value

Mergers and acquisitions aim to grow an entity’s reach and expand their operations. With the right vision and execution, M&A could be a quick way for businesses to enter new markets. It can also be an effective strategy when looking to maximize value for shareholders.

Mergers affect shareholders for both entities, and it manifests in different ways—for instance, the changes in the value of stock prices. The stock price of a freshly merged company is predictably higher than the acquiring party and the target company. Shareholders of the acquiring side often see a brief drop in share value leading to the merger, while shareholders of the company being bought see a spike in share value during the interim.

Likewise, M&A executed with the wrong vision may negatively impact the shareholders’ value. Case in point, the Bank of America’s acquisition of Countrywide Financial and Merrill Lynch saw their stocks plummeting down south after their M&A transaction. Reason being, the three companies’ cultures didn’t mesh together.

The end goal of mergers and acquisitions should be to generate (and maximize) value to shareholders and retain a healthy and robust company. If you see your company undergoing either a merger or acquisition in the future, make sure that you have a clear vision, and that the company you’ll be working with aligns with your core values and culture as a business.

Maximize M&A Value Creation with Synergies

Synergies from the M&A perspective refer to when the combined value of the two companies that merge exceeds the separate individual value of the acquirer and the target. That being said, it is expected that the integration can lead to value creation generated through synergies between two entities.

Achieving synergy is the goal of every M&A transaction. These are essentially the only reasonable grounds for acquisition because they constitute the additional value that can be obtained in the acquisition process. That is, when the acquirer purchases the target for a reasonable cost. A successful M&A transaction starts with a plan that will facilitate those synergies. Seeing those synergies materialize from day one of the process signals successful integration.

Three various types of synergies may spring up in mergers and acquisitions transactions: cost, revenue, and financial. Let’s see how each factor influences value creation during the M&A process.

Cost Synergies
Cost synergies refer to the opportunity of minimizing overall costs as a result of two companies combining, which consolidates operations and creates economies of scale. Cost reduction is the highlight of this type of synergy since even if the rate of the revenue does not rise, the costs would still be reduced, and profit would increase.

Potential sources of cost synergies are lower staffing and salary costs since merged entities won’t need two people for each position (i.e., two CEOs or CFOs, etc.), reduced rent, reduced professional services fees, and consolidating suppliers or renegotiating supplier terms, among others.

Revenue Synergies
Revenue synergies occur when two entities combine and as a result, can sell more products and/or services or gain market share together as opposed to when they were separate companies. For instance, if Company A, who had revenue of $300 million, integrate with Company B, who had a revenue of $70 million, they’re combined revenue is expected to rise to $400 million, which implies revenue synergies of roughly $30 million.

Revenue opportunities of this type are access to new markets, sharing of distribution networks, improved sales and marketing, better pricing power, adoption of the cross-selling strategy, and supply chain efficiencies.

Financial Synergies
Finally, financial synergy in M&A transactions refers to when two entities integrate to establish financial advantages they wouldn’t otherwise be able to achieve individually. This is highly beneficial for mid-sized companies. Moreover, merged entities are usually granted more tax breaks and tax reductions than they had as two formerly separate companies.

For instance, when a mid-level organization borrows a loan from a bank, they might get charged with higher interest. But if two mid-level companies integrate and as an outcome, they become a large company that borrows a loan. They will then receive lower interest rates in acknowledgment of a more efficient capital structure and a balanced cash flow to support the loan.

Value Creation for the Owner Upon Exit

Mergers and acquisitions transactions often highlight the triumphs of buyers or investors. From a seller’s perspective, about 42% of divestors stated their last sales generated value. In reality, business owners who decide to cash out and surrender to the full acquisition of their company can get value out of exiting as well, especially if you’re selling to a strategic player who has the right vision and plan for implementing the acquisition.

“Selling out” isn’t necessarily a wrong business move. One of the well-known benefits of selling is it provides immediate total liquidity. This is a far better option compared to IPO (Initial Public Offering), where founders are usually subjected to lock-ups preventing them from selling shares for a time, and with shareholder liquidity set aside to prioritize growth.

Standard M&A deals are faster, less laborious, and less expensive as opposed to going for IPO. This covers the negotiation of terms followed by three to six months of due diligence.

The reasons that motivate a business to sell can vary. Perhaps it’s due to a competitor offering an unsolicited yet highly rewarding offer, the founder is ready to dip their toes into other ventures, or perhaps they’re simply ready to retire. Involving your business in mergers and acquisitions transactions can be a great option when the time comes and you’re prepared to sell your company.

It’s been a highly eventful year for M&A in several key areas. In the staffing industry alone, it was reported that 33 M&A transactions transpired in the first quarter of 2019. It’s always better to ride the robust cycle when it’s red hot. However, make sure to build a solid exit plan for at least 3-4 years ahead of your sale. You’ve spent years investing in and growing your business; you must do the same when it comes to selling it.

Summing It Up

The bottom line is, value creation should be a priority during M&A deal processing. Businesses should carefully look into the negotiation terms and integration risks to certify that the transaction is a win-win for both parties, whether it be a merger or a full acquisition. M&A should lead businesses to maximize value creations to achieve maximum synergies.

In the global corporate marketplace, mergers and acquisitions are commonplace. You’ll hear news and stories about a big company acquiring small businesses or entities merging to cement their place in their respective industries. But that’s not all there is to it. Companies should also aim for revenue growth and cost reduction, leading to better financial performance.

Are you looking into a business merger or acquisition in the future? You might want to reach out to a reliable M&A consulting team to help enlighten your objectives and introduce you to firms whose values, business culture, and strategies align with your own company. This way, you can ensure your partnership is successful and worthwhile.

This article was originally published on the Golden One Ventures Blog: Maximize Mergers and Acquisitions Value Creation

When one decides to invest even the small amount can reap big rewards.

Let’s take a ride through this article for you to understand 5 steps to easily start investing with little money.

It is never easy or simple to save a lot of money every month – if you want your savings to have a outcome and grow into a nest egg, you need to invest and invest.

There are many people out there that put off investing just because they think to invest you need a lot of money – like a good bank balance is a requirement.

But, No! That’s not true – You can start investing for as little as you have, for example $50 per month.

The success key to wealth is developing in good habits. Try to make investing a regular habit, it will help you in the long run down the road.

Don’t really believe in what I am saying? You think I am just saying it for the sake of my article?

Then let’s just have a look through and you will know what I am saying:

Cookie Jar Approach:
To save up money and to invest them are kind of the same thing to do it is slightly connected in a way. When you are planning to invest some money, you need to save up some for it. It can be less time consuming – you can manage to do it in few easy steps.

If you’ve never been able to save up money, you can start doing it little by little – like $10 per week for example. That won’t feel like a huge burden, but when over the year you come to see it will be $500. Which is a good achievement in simple words for a person who was never able to save up?

You can save this amount in an envelope, a small box, a small safe, or also in the legendary bank of yours, the cookie jar. It might sound stupid or silly to you, but trust me it is a necessary first step. Make a habit of living on a little bit less than you earn and stash out the savings away in a safe place for a better tomorrow.

Consider a good bank for yourself that can cover a good annual percentage for the online savings account.

Try starting with small amounts start increasing it with time.

For example: it can be not having a good expensive meal for now or passing on your movies you like, and save up that amount into the cookie jar instead.

Real Estate Market – Your First Step:
Real Estate might look something you’ve be scared off or nervous about but it can be an intriguing investment for you. It does not have to be very rich. There are many options for real estate crowd funding.

Now with Fundrise its really easy to use online platform, for the start up all you will need is a minimum investment of $500. If you are an unaccredited investor, you can easily buy properties without even paying those large amount of fees that can be a deal breaker of you are planning to start dabbling in real estate. You can manage your own portfolio, the fee will only come up to %1 and Fundrise is always offering a 90 days satisfaction guarantee.

Employer’s Retirement Plan – Enroll In
If you are under a tight budget, simple step of enrolling or other employer retirement plan might seem out of your reach. There is always a way out remember.

You can easily begin investing in an employer – sponsored retirement plan without any amount that is small and you won’t even notice it.

For Example: Just try to plan 1% of your salary into the employer plan. It won’t be missed as it is such a small contribution. But it will be easy for the tax deduction will make it even smaller. You can increase it gradually each year.

For Example: Maybe in 2 years you might be able to increase your contribution to 2% of your pay. In 3 years, into 3% and so on.

The increases with your annual pay raise, you’ll notice the increased contribution even less. if you get a 2 percent increase in pay, it will effectively be splitting the increase between your retirement plan and your checking account Just if your employer provides a matching contribution, that will make the arrangement even better.

Mutual Funds – Low Initial Investment
Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them perfect for new investors.

The trouble might be regarding the many fund companies initial minimum investments of between $500 and $5,000. Some of the mutual fund companies might waive the account minimums if you are ready to agree to the automatic monthly investments of between $500 and $100.

It is a common feature for automatic investing with mutual fund and ETF IRA accounts. Less common it is with taxable accounts. There are a lot of Mutual Fund Companies that are known to do this and the following are some names Dreyfus and Transamerica.

Automatic investing arrangement is convenient if you can do it with payroll savings. Set up an automatic deposit situation through the payroll, in almost the same way you do with an employer- sponsored retirement plan. Just consider it with your HR department on how to set it up for you.

This will be helpful. Get help with your finance and accounting services via Black Ink.