Omar Ascha, Financial Professional, Reveals What a Business Owner Should Know About Mergers and Acquisitions
by Mashum Mollah Finance 11 February 2019
When talking about mergers and acquisitions, the terms are usually grouped together as M&A. They are also sometimes used to mean the same thing – but actually, mergers are quite different than acquisitions.
When one company, typically very large and successful, buys another company that is usually not so large or successful, that is called an acquisition. The company being bought is the “target company,” and once acquired it no longer exists as a separate entity. The purchasing company continues to do business as usual with the issuance of stock and so on, whereas the target company’s stock will no longer be traded.
In a merger, also called a “merger of equals,” two companies of the same size and profitability decide to form a single new company. The new company may be given a new name. For example, when oil companies Exxon and Mobil merged, they became ExxonMobil. The stock for both companies ceased to be traded, and stock in the new name took its place.
Not all mergers and acquisitions are successful. In big-big business, there have actually been some spectacular failures. The reasons for those failures could be the same reasons why smaller mergers and acquisitions fail, so let’s explore them.
Megan Ruesink of Rasmussen College explored “the Good, the Bad and the Ugly” of top corporate mergers in a 2015 article.
One “bad” merger she covered was that between Daimler Benz, a manufacturer of high-end German cars, and U.S. automaker Chrysler. They became Daimler Chrysler, but the merger did not go well, and after nine years, Daimler Benz sold Chrysler to another company. The reason the merger failed? An inability for the two distinct corporate cultures to work together. According to Ruesink: “Chrysler was nowhere near the league of high-end Daimler Benz, and many felt that Daimler strutted in and tried to control the folks on the Chrysler end. Such clashes tend to undermine a new alliance.”
Lesson learned – if you’ve been contacted by a larger company that wishes to acquire yours, do some in-depth research into that company’s culture. Meet its top executives and try to meet its employees as well. Too often these acquisitions take place at the top level with little regard for the employee base.
Then there was Quaker Oats and its acquisition of Snapple. This was a case of the executives at Quaker Oats not recognizing the reason for the appeal of the up-and-coming Snapple. Snapple was attractive to a certain market – and not the one that Quaker Oats subsequently tried to shove it into. After just a little over two years, they had to sell Snapple at a loss.
Whether you are a small company seeking to be acquired by a larger one in expectations of ensuring your profitability, or if you are sought out by a company of equal size wishing to merge, it’s important to do your due diligence and make sure your cultures will mesh together – as well as the egos and expectations of your top executives.
Hiring a consultant of your own, one with expertise in your business sector, to explore the consequences of a merger or acquisition, is a good idea.
About Omar Ascha:
Omar Ascha is an emerging finance professional with an education from UC Berkley who works as a financial analyst. With experience in mergers and acquisitions, capital raising and strategic advisory, he helps his clients achieve progressive, vertical results.