Mergers and acquisitions (M&A) are a common strategy for companies looking to expand their market reach. Many opt to do M&A because it’s a cost-effective way to increase profits and gain a competitive advantage. That’s why seeing its uptick is no longer surprising, with global M&As hitting 3.8 trillion in value.
In Canada, most transactions happened in the mining sector, accounting for 37 percent of all M&A activities. However, these transactions can be complex and risky. Careful planning and execution take a minimum of six months to a year to finalize.
Opportunities of M&A
Here are some of the potential benefits of such transactions.
Acquiring a competitor or complementary business allows companies to expand their customer base and product offerings. It also opens opportunities for further geographic reach to increase revenue and profits.
#2. Preparation for scaling
M&As can enable companies to achieve scalability. Companies can eliminate redundancies and improve efficiency and competitiveness by utilizing existing resources and processes.
#3. Access to new capabilities
Strategic acquisitions can be a valuable asset to businesses, allowing them access to specialized expertise and intellectual property that may provide an edge in competitive industries. It creates an alliance between companies and encourages innovation for new products or services.
To maintain success and capitalize on the potential of mergers and acquisitions in today’s ever-evolving market, companies must carefully consider a comprehensive approach that considers risks and rewards.
#5. Define strategies
Companies should clearly understand their strategic objectives and pinpoint potential M&A targets to help them achieve these goals. Making the right acquisition is essential for success, so businesses must find an optimal fit.
#6. Develop a comprehensive integration plan
Companies should develop a comprehensive plan considering all aspects of the integration process. This should include cultural differences, operational changes, and regulatory compliance.
Note that M&A transactions can significantly impact employees, customers, suppliers, and other stakeholders. Engage these groups early in the process and communicate the changes that will occur secondary to the transaction.
#7. Consider tax implications
As companies pursue M&A deals, they must consider the tax implications. For example, purchase price allocation involves allocating the target company’s purchase price to its assets and liabilities. It affects the depreciation and amortization of assets.
Additionally, the tax treatment of M&A transactions varies depending on the deal’s structure. For example, a stock acquisition may have different tax consequences than an asset acquisition.
In Canada, there are specific rules for the taxation of M&A transactions. Companies must understand these rules and consider their tax implications when structuring their deals.
#8. Do due diligence
Due diligence is a must before making any commitments. Companies should work with tax experts like Faris CPA to review the target company’s financial statements and tax records. This is a non-negotiable process to identify potential tax liabilities, such as outstanding tax obligations or uncertain tax positions. This information is critical in determining the target company’s value and negotiating the purchase price.
Follow Best Practices for a Successful M&A
M&A transactions can be a potent approach for companies seeking to achieve their strategic goals. But making them successful is not easy — it is an ongoing process that requires tactical planning, precise execution, and attentive management to ensure the most favorable results.
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