Why Business Professionals Should Be Aware of the M&A Process


Businesses often join forces to produce higher profits than normally possible, widen scopes of business, and diversify their offerings to safeguard against risk. Such combinations are often called M&A, or mergers and acquisitions. Acquisitions involve one organization buying out or purchasing controlling interest in another, in which the smaller entity becomes owned solely by the controlling entity. Mergers are characterized by two business entities actually joining forces with one another, creating a new organization that includes all or most of existing employees, facilities, equipment, and business functions.

Mergers and acquisitions have skyrocketed in frequency and dollar value in the past thirty years. In 1985, there were only 2,500 M&A’s across the world. They quickly proliferated across the business world, reaching a peak just under 50,000 transactions in 2016.

As such, it’s important for business professionals to be aware of the basics, nuances, and intricacies of the process of mergers and acquisitions — here’s exactly why.

Individual Employees are Sometimes Let Go…

Let’s say Acme Company and XYZ Corporation join forces in a merger. Separately, each business has their own accounting, marketing, and billing departments. Prior to merging forces, each of these three departments functioned independently. Each department has 25 employees.

After they join forces, they know have 50 employees in each department. While it might seem necessary to maintain the same number of employees, this couldn’t be further from the truth. An average of thirty percent of employees are let go following mergers and acquisitions, their former job duties now deemed redundant. Although no business is crazy about letting employees go, it makes sense financially to do so.

Business professionals that aren’t aware of this harsh reality may take on mortgages, expensive car payments, or other financial obligations in their personal lives, unknowing of the sometimes-detrimental effects of mergers and acquisitions. As such, it’s important to be aware of this harsh reality.

And so are Entire Departments

Piggybacking off of the above example, the new company formed between Acme Company and XYZ Corporation is unlikely to need dual accounting, marketing, and billing departments. While an average of 30 percent of employees are cut, businesspeople involved in these two organizations should be prepared for entire departments to be “nipped in the bud.”

Further, the existence of departments might be nixed from operations. Let’s assume that the organization formed as a result of this merger plans to cut in-house marketing functions and outsource them to another organization. This possibility occurs more than businesspeople are at peace with, resulting in many people getting their positions removed from new business entities’ payroll.

Changes in Benefit Packages

Most every employer offers benefit packages to their employees, including things such as health insurance and paid time off. Mergers and acquisitions often have effects on benefit packages, which can prove either advantageous or detrimental to employees, depending particular situations.

Stock Investments are Often Affected

When companies join forces, their outstanding stocks are often significantly affected. Stock price is markedly viable in the months following mergers and acquisitions. In acquisitions, parent companies’ stock usually declines in value prior to the transaction, with the opposite true for organizations being acquired. Stock values of acquirees generally performs well over the long run, although every situation varies.

Dilution often results from mergers and acquisitions as well, meaning more shares are made open to the public. This results in shareholders with sizable shares of stock losing the voting power they once had, an unfavorable result for any shareholder with significant value in organizations.

Cultural Changes

Many business people value the culture of their employers in deciding where to work. When companies join forces or become acquired, their culture often meshes with associated organizations. This may result in an unpleasant place to work for some employees, leading them to lose interest and even quit.

With mergers and acquisitions being so popular in today’s business world, it’s important for every businessperson to be fully aware of the ups and downs of the M&A process. Each and every business entity is unique in nature, as well as every merger and acquisition transaction. As such, every shareholder, investor, and employee involved with organizations undergoing M&As should evaluate their situations and future plans during these processes.