Over the past several years, Mergers and Acquisitions (M&A) transactions have seen a notable acceleration. The driving force behind this? A phenomenon we know all too well: value creation.

Experts in mergers and acquisitions have the keen ability to identify untouched or underutilized growth potential within a company. As a result, they can bring their expertise to company managers and guide them through new developmental strategies.

Through the strategic use of mergers, managers can create synergies with other companies or discover new growth opportunities through financial routes.

Why do mergers and acquisitions create value?

Mergers and acquisitions specialists serve as matchmakers, connecting business executives seeking investment with those struggling to grow, or who are looking to sell their businesses to reinvest in more efficient ways.

These transactions stimulate value creation and synergies. Both parties share a common goal: to enhance efficiency and profitability.

Consider, for instance, a business transfer. The sellers part with their company, ensuring its continuity and growth. In this scenario, the M&A professional identifies a buyer with the necessary financial and professional wherewithal to ensure the company’s development. The buyer, in turn, acquires a company hoping to achieve a higher return on investment than other avenues, facilitated by synergies, economies of scale, and more.

Indeed, these transactions result in optimized asset use, better management of industrial shocks, rapid company growth, access to strategic knowledge and skills, and increased market share and entry barriers, all while reducing competitive pressure.

How do mergers and acquisitions create value?

The role of an M&A expert is multi-faceted. Starting with a blank slate, they might identify two complementary companies, X and Y, and propose a merger. Among five ideas, at least one will create value and jobs. Transaction opportunities often arise from the initiative of M&A experts, who guide investors to interesting deals, or directly from company managers. Mergers and acquisitions foster value because they aim for development and growth.

By acquiring a competitor, a company can increase its market share and hasten its growth without significant internal effort. These are often called “horizontal mergers“. A larger company may decide to acquire a smaller competitor, expanding its product portfolio and production capacity, while the smaller company benefits from the larger company’s distribution network.

Alternatively, a company can cut costs by purchasing one of its suppliers or distributors, thereby increasing its negotiating power in the value chain. For instance, if a company acquires a supplier, it can save on supplier margins, a situation known as a “vertical merger”. Conversely, if a company purchases a distributor, it can reduce transportation and delivery costs.

In general, a transaction is considered value-creating when the combined value of the merged entity surpasses the sum of the value of the two separate entities. Operational and financial synergies and new cost structures that emerge from the merger often enhance value and performance.

However, success is more likely when executives rigorously prepare, implement, and execute these plans. That’s why many turn to M&A experts for guidance in preparing for such transactions. From an investor’s perspective, employing a “real specialist” improves the odds of persuasion.

How do mergers and acquisitions help companies grow in times of crisis?

In challenging times, a proactive external growth strategy is advisable for coming out ahead. Experts often recommend external growth operations as strategic actions to quickly assess one’s position.

In such scenarios, companies with targeted M&A strategies are more likely to capitalize on the situation. Indeed, one way to maintain growth during a crisis is to collaborate and become more efficient. This can be achieved by combining two competing companies that serve the same market or sell similar products, merging two companies involved at different stages of the supply chain for a common good or service, or even between two companies with no production or market links.

This type of growth involves a total or partial acquisition, through various means, of shares in a company, thus acquiring assets that are already combined and organized, ready for operation. These can be viewed as restructuring tactics for groups to redeploy tangible and intangible resources and to distinguish between the most and least profitable entities. Their primary goal is the realization of synergies, which often hinges on the new entity’s ability to unlock untapped savings across various functions.

Indeed, the merger of two companies can lead to reduced production costs, which is economically advantageous. This implies there are efficiency gains. Depending on the company’s strategy, prices can be lowered to capture market share, or they can be raised as the number of market players decreases and a dominant market position becomes feasible, depending on the sector.