The Future of Mergers and Acquisitions amid COVID-19
Introduction
In the face of the COVID-19, there has been economic unrest, resulting in companies' fallout. Globally, the pandemic has resulted in unrest, as evident in various market insecurities and decreased interest rates, adversely impacting investors and consumers' confidence. As a result, most of the companies are under great distress, and in most instances, they are consolidating. The efforts to help fight the pandemic are making issues even challenging for the companies, including lockdowns. These measures are putting the business operators in trade tensions, regulator pressure, creating uncertainties. Operation challenges are felt in company operations, and some of them are opting for a merger and acquisition (M&A) as an exciting path. This paper expounds on the acquisition and integration business amid the COVID-19 pandemic, an economic trend in the business world (Florio et al., 2018). Additionally, we will discuss the strategies that help keep competitive across the borders even with the set strict measures of coronavirus. More so, strategies have led to creating and maintaining treaties among firms and thriving firms across developed and developing nations.
Acquiring and Integrating Business
Amid COVID-19, decisions concerning the acquisition of companies have been common as a surviving option. However, it is essential to ensure that the acquisition process is efficient to avoid making the wrong acquisition decision. Commonly, the acquisition is far-reaching beyond the change of the company’s letterhead. Indeed it means to change or ending of career paths, change of jobs and others get lost, and new jobs are created. However, they go into suspension for the acquired companies, and employees worry about integrating into the new company culture. In most stances, acquisitions are disruptive events, which are never neutral and cause divestitures adding another level of employee disruption. The acquisition process means that a transaction is made between firms that one of them buys the controlling interest of another firm, with a primary goal of making it a subsidiary or combining it with its current business. When the acquisition process is well planned, the company achieves significant success (Augustsson, 2021). This is different from a merger, as two firms combine on a relatively equal basis. However, both processes are negatively affected by hostile takeovers, where the target firms respond negatively concerning the proposed transaction. Upon agreement, M&A takes place even across the borders, in different countries.
M&A is not a one-hour thing; but instead, it has to strategic and well-planned activity. The result of this process should be improved performance of the firms. Various reasons are primarily associated with acquisitions; some include reduced costs, especially enjoying economies of scale, purchasing the competitor in the same market as the acquiring firm for horizontal acquisition. Costs are reduced with vertical acquisitions, where the purchase involves suppliers or the distributors or more of the firm’s goods and services; the purpose of doing this is to increase the firm's scale and market (Feng et al., 2019). Gaining market power is achieved when a firm sells its products above the competitive prices or when the costs are below those of the primary competitors. The purpose of market power is to eliminate overcapacity by removing duplicate operations, raising antitrust issues, and thus companies might pay much for the acquisition process in pursuit of power. Other advantages of acquisition help foster growth, especially in fragmented industries with many other small competitors of equal size helping in the firm’s growth rate. Additionally, M&A help in learning to help build capabilities, which stands as the common reason for making decisions in the 21st century. Lastly, the acquisition is essential in managing risks and meeting other financial objectives amid the COVID-19 crisis. This is through diversification of operations, reducing dependence on the intensely competitive market, and giving shareholders more benefits.
More importantly, any successful M&A process must be strategic. This is achieved through careful screening, selection, and negotiation with the target firms. An informed evaluation is important before acquisition and merger; this is achieved through conducting due diligence. The purpose of due diligence is to carefully evaluate the target firms and verify the strategic and financial soundness of the reason for the transaction. The screening process examines the firm being acquired in terms of its value, synergies between the combined firms, and the price the acquiring firm is offering to the other firm after screening a firm that is most suitable combines. Therefore, it is essential to carefully integrate the newly acquired resources, which is the critical factor determining the success or failure of the merged firms. Integration is more successful if the team members of both firms are given the integration responsibility. More precisely, mergers of equals work best in situations where a new identity is created. However, there have been challenges in acquisitions, which need to be overcome. Some of these problems result from inadequate evaluations or paying too much. Other challenges result from excessive debts in the post-acquisition period and sometimes due to over-diversification. These are likely to cause failure in the acquisition, thus restructuring and focusing on the firm’s core business.
Competing Across Borders
Business operations have a goal of reaching the international market. Even amid the pandemic, some strategies can be harnessed to reach the international markets. This effort can be realized through sourcing of resources and supplies, expanding or developing new markets into the international market. In addition, focus on competitive rivalry in the foreign regions and leveraging core competencies and learning. However, the success of competition across borders is determined by choosing sufficient international strategies, which include global efficiencies, customization of goods and services for a particular host country.
Additionally, efficiency is achieved through ensuring low production and distribution costs, low labor costs, economies of scope and scale (Hill & Jones, 2011). Also, efficiency is met after the customization of products to meet local market tastes. Various strategies deployed include multi-domestic strategy, where the firm produces and sells unique products to different markets. Also, embrace the global strategy where standardized products are sold to different markets. The transnational strategy also works on unique and standardized products in different markets. These strategies help firms opening up into the global context advancing sales even during pandemics. However, these strategies need to be sustainable by eliminating all possible sources of failure.
Creating and Maintaining Alliances
In order to remain competitive across borders, it is essential to form alliances with firms in other nations. These include strategic plans to achieve long-term success with both developing and developed nations. There are various alliances that a firm can engage in, which include strategic alliance, corporate strategy, guided towards attaining competitive advantage rather through equity or non-equity alliance. Various reasons have been found to guide the development of strategic alliances; these alliances have been found advantageous to help firms enter restricted markets, thus overcoming trade barriers and avoiding major conflicts (Beals, 2021). Besides, alliances help in facilitating new products development and sharing uncertainties of entering new international markets. More importantly, firms enjoy access to complementary resources, gain market power and outsource important functioning activities.
When making these alliances, it is essential to understand the levels of the alliances. Some common levels include vertical strategic alliance, involving corporate partnerships across the values chain. Horizontal alliances, where the partners at the same stage of the value chain share resources and capabilities. This level enhances competition in the markets and shares risks resulting from uncertainties, especially from highly competitive markets (Beals, 2021). Further, the corporate levels, whose focus is on the product line to ensure firms' growth, are less costly. International strategies alliances are the most prominent when entering foreign markets and compete effectively in the new international market. These alliances also work well when managed risks, eliminating issues of trust, differences incorporated and national cultures, and unwillingness to share essential resources. These challenges can be overcome by selecting compatible partners.
Conclusion
In conclusion, the outbreak of COVID-19 has adversely impacted companies' operations. Some of the firms have been acquired; others merged to survive in the tough market. M&A have also positively and negatively affected the employees through the creation and loss of jobs. Besides, the success of the business is determined by the ability to integrate and operate smoothly. The purpose of the combination is to develop a strong firm that competes successfully in the market. Also, helping the company cross the borders makes alliances in other countries and enjoy market benefits. It is, therefore, to create strong and sustainable alliances to enjoy market benefits present in the other regions. Putting these strategies in practice will ensure success in operation even with the pandemic.
References
Augustsson, S. (2021). Business Growth by Mergers and Acquisitions: A Qualitative Study of Business Strategies: The Case of Smile Tandvård.
Beals, J. (2021). ″Mergers and Acquisitions after the Great Recession,″ Strategy 45(2)
Feng, Y., Wu, J., & He, P. (2019). Global M&A and the Development of the IC Industry Ecosystem in China: What Can We Learn from the Case of Tsinghua Unigroup?. Sustainability, 11(1), 106.
Florio, M., Ferraris, M., & Vandone, D. (2018). State-Owned Enterprises: Rationales for Merges and Acquisitions. CIRIEC Paper, (2018/01).
Hill, C. W., & Jones, G. R. (2011). Essentials of strategic management. Cengage Learning.
