Why M&A Happens?
M&A is a common means of growth for businesses. It often leads to positive outcomes for all parties involved. In fact, the majority of mergers result in a net benefit to shareholders. However, there are risks involved with mergers that need to be taken into consideration. The most obvious risk is that it could result in job losses. Other risks include a lack of market competition, disruption of existing markets, and lack of customer loyalty.
The noticeable change in M&A had been seen during the pandemic years (2020-2021) when so many small-scale industries merged with medium or large-scale industries to survive in the market.
They’re both a result of companies being in the same industry and being unable to compete on a level playing field. When two companies that are in the same industry and are growing and making money in the same marketplace decide to merge, the company that was larger will usually come out ahead. This means that the larger company will often grow faster and become a bigger player in the marketplace. In addition, the larger company will be better positioned to take advantage of opportunities as they arise.
The Top Trends in M&A in 2021
In 2021, the number of mergers and acquisitions (M&As) is set to increase. According to Citi, there will be a total of $2 trillion worth of deals over the next five years, up from about $1.9 trillion over the past 10 years. The reasons are simple: investors are willing to pay up for companies with strong brand recognition and a long history of profitability, while technology companies are merging due to the increasing demand for products and services.
These trends are based on recent trends and events that have taken place within the past couple of years. According to a report by PitchBook, 2018 saw $5.4 billion in mergers and acquisitions (M&As) and $2.8 trillion in stock market transactions. The two main reasons that M&As are taking place are to create scale and efficiency. In fact, a study by Gartner predicts that companies that merge will grow at a rate of 6% higher than companies that are not merged.
The Impact of Technology
Technology has a huge impact on the merger and acquisition market. This can be seen in many ways, but one of the more visible trends is the rise of “fintech.” Fintech is short for financial technology and refers to technologies that focus on improving efficiency and streamlining the way banks operate. These technologies include mobile banking, online banking, and social lending. All of these are tools that allow consumers to access financial services on their own terms.
When mergers and acquisitions take place, technology plays a role in a lot of the back-office tasks. The acquisition process is often complicated, and many times there are multiple parties involved, meaning that there may be multiple IT departments and multiple systems to integrate. These steps can take time and money, and when an acquisition deal is announced, it can be a great time to review the technology your business is currently using.
To survive, companies must innovate, collaborate, and transform themselves for the future. They must think and act in ways that are sustainable and create a culture that embraces change and disruption. They must lead by example and demonstrate that change can happen organically. If they fail, their legacy is one of waste and unprofitability. If they succeed, they will be rewarded with profit and growth.
