Mergers & Acquisitions

Mergers and acquisitions (M&As) are often an appealing way for companies to rapidly grow their businesses. They are a good method to access new markets, acquire new technologies or decrease competition. The most successful M&A deals are those that recognize, measure, and make full use of synergies.

 

The role of Caravel Financial in the M&A sphere includes determining if the merger or acquisition option is suitable, finding the right partners, identifying and quantifying potential synergies, valuing the target companies, overseeing the negotiation process and designing the deal structures that will produce the best outcome. Cross border transactions can also be addressed and the focus in these cases will be to work with indigenous professionals such as lawyers, tax advisors and auditors to understand the local business environment and government regulations in order to engineer the best solution.

 

Focus on Synergies: where 1 + 1 = 3

A synergy is said to have occurred if the entity resulting from a merger is more effective than the sum of the unmerged firms acting individually. 

Synergies can take a number of forms:

 

  • A) Revenue boosting synergies:
  • Mergers can boost revenues by making use of the   relative strengths of the merged companies. For example, one firm may have an extensive range of product offerings while the other may have strong distribution and marketing capabilities. Through cross-selling, the combined entity will be able to sell more products than if either firm was acting alone.
  • B) Cost reduction synergies:
  • Cost reductions are often the easiest forms of synergies to identify. These can result from economies of scale (for example where the combined larger entity is able to buy supplies in bulk), elimination of intermediaries, decrease in the number of employees, or improvement of logistics.
  • C) Asset reduction synergies:
  • Rationalizing duplicate assets of the merging firms can present a good opportunity to realize value. For example, an airliner may discontinue its flights on a specific route to boost the utilization levels of its former competitor on that same route. Other forms of synergies can result from tax reductions or improved access to financial markets.