In April 2017 National Bank of Abu Dhabi and First Gulf Bank merged and formed First Abu Dhabi Bank, currently the UAE’s largest bank. More than a year later, on the 22nd of October 2018, the bank reported a 16% increase in net profits for the third quarter of 2018 versus last year. Exceeding expectations, the merger is seen as a tremendous success. Given the complexities of such deals, mergers seem like opportunities only large businesses can take advantage of. However, mergers can be a source of growth for small and medium-sized enterprises as well. In this article we explore; the different opportunities that arise for SME’s from mergers, the possible risks of a merger, how to make the most of those opportunities, and how Whitehall & Company can help businesses achieve a successful merger.
Mergers give businesses access to consumer bases that were previously unattainable. Expanding into a growing market can be challenging because it requires capital and knowledge of the market dynamics. Merging with a business that has existing operations in the growing market would give your product access to a wider consumer base through their established operations. For example; an established sports goods manufacturer looking to jump into the growing outdoor recreation market could merge with a local hand-made trekking bag manufacturer. The deal would bring with it the knowledge and expertise that would have otherwise taken years to develop. The smaller trekking bag manufacturer would gain an established brand name and an existing supply chain, which would give the business’ product a push in the market.
Mergers provide the opportunity to access specialized expertise. In a growing market, constant innovation is key. Businesses must adapt to changing environments in order to remain relevant in the market. However, this is not easy for small businesses if acquiring expertise is expensive or time-consuming. Merging with businesses that specialize in that area would allow businesses to develop their product or service in a way that is cost effective. This has become crucial for retail stores with the immense growth e-commerce has seen over the years. Retail stores have the opportunity to adapt by merging with e-commerce companies that specialize in their line of business.
Even though mergers seem like an all-win scenario, there are many reasons why most mergers might fail. However, there are a few key reasons that are common throughout. Deals that were overvalued at the start of negotiations and a lack of cooperation after the merger are aspects that occur frequently.
Businesses often fail to understand the risks involved in a merger. A completely new enterprise that would be formed might be more vulnerable to changes than the existing business was in the past. The reaction of competitors is often underestimated and customer disapproval is common. Forecasting the deal’s potential must take into account the impact it has on relevant stakeholders and their responses.
An absence of a strategic plan leads the merged company towards a series of disputes and disagreements. A clear plan would keep all parties aligned towards a common goal and milestones that get them there. Companies that fail to organize a plan become tangled up in the power dynamics and become ignorant of the reasons the merger took place.
In a growing market there in an unlimited amount of opportunities any business can capitalize on. However, it is important to distinguish between the ones that add value to your business and which do not.
The interests of each party involved must be aligned. It is normal for businesses to disagree on a number of issues, however, it is important for core interests to be aligned. One might see it as an opportunity to exit the market, while the other would want to use the target company’s knowledge and expertise. Discussing candidly in the beginning what each business’s goals are from the proposed merger is crucial to the success of the deal. Therefore, finding a business that is equally passionate about the problems your product solves and fits your culture is crucial.
Understand the true value of the merger. Valuing a potential merger can be difficult especially if you do not have an adequate understanding of the target company’s operations. This makes the future of the merger foggy and makes the deal seem risky. It is important to understand how the merger would affect your existing operations as well. A thorough analysis of the financials and market is a prerequisite to understanding the deals worth. This requires expertise in finance and knowledge of the market you would be entering.
The Whitehall finance team is equipped with a set of skills that are necessary to assist SME’s with the merger process. Our team brings with it diverse industry knowledge, financial expertise, and proficient deal negotiation techniques. For a successful merger, it is important to pick the right company and facilitate a healthy transition.
Picking the right target company requires thorough due diligence of the financials. This means looking for problems that may exist in the target company’s business that may make your business vulnerable to unwanted risks. Moreover, a realistic forecast of how successful the merger can be would help value the deal accurately.
The deal advisory team is experienced in delivering a transition that benefits all the stakeholders involved. From structuring the deal, negotiating the power dynamics, and assessing the tax impact of the transaction, acting as the third-party Whitehall can facilitate a successful merger.
The whole is greater than the sum of its parts; the definition of a successful merger. A deal where both companies form an alliance which makes them both better-off as when they were operating solely. Mergers & Acquisitions are a proven source of growth and can help businesses increase revenues and create value for their owners, however, such deals can be complex and risky. In a competitive growing market, SME’s must capitalize on the opportunities that exist in the market. A merger could help penetrate new markets or improve the product or service. The possibility of failure is however high. But the presence of a strategic plan for the merged company to follow, and a better understanding of the risks, a merger can be very successful. It is also crucial to find a cultural fit and a thorough due diligence must be done before considering a target company. It is highly advised to seek third-party guidance before, during, and after the merger. The Whitehall team has adequate knowledge and expertise to assist SME’s throughout the merger and acquisition process.