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John Willding Discusses Driving Factors in the M&A Market
John Willding, a Mergers & Acquisitions Attorney from Dallas, Texas, understands that a variety of factors drive the M&A Market. These include the desire to expand, research and development costs, new products on the market, and more. Factors that drive the M&A Market are usually identified as being internal or external and can include:
External Factors: economic conditions, new competitors, industry structure, and government regulations.
Internal Factors: competitive advantage and bargaining power of suppliers and buyers.
The desire to expand is often cited as one of the driving forces behind many mergers. Let's explore some of these factors and how they play a role in why we see so many mergers and acquisitions take place regularly!
What is M&A
Mergers and acquisitions (M&A) are an important part of how businesses grow. John Willding feels that buying another company can and should offer important benefits for both firms involved. They also allow shareholders of both companies to profit from M&A transactions.
Annual international M&A transactions total about $1 trillion worldwide.
John Willding believes that the three largest drivers for this market are:
The desire to expand - Companies want to grow their market share by adding new products or services, increasing product diversification, adding new markets, or acquiring new distribution channels.
Research and development (R&D) cost, which is about $200 billion annually, can be one of the biggest factors in deciding whether to merge with another company
Bargaining power of suppliers and buyers - This is not a major factor in most deals but could be an important determining factor when considering taking over a company that would give you control of a larger market share
The Desire to Expand
Companies want to grow their market share by adding new products or services, increasing product diversification, adding new markets, or acquiring new distribution channels.
Competition forces companies to specialize in their areas of expertise - offering the best products at the cheapest prices. Companies are looking for ways to stay competitive and keep up with competitors, which can lead to multiple M&A deals being made within a short period.
The internal factors that drive M&A activity in a company's industry or sector of interest are typically competitive advantage and bargaining power of suppliers and buyers.
Competitive advantage is the ability of a company to create value for itself, its customers, its shareholders, and other stakeholders. The competition forces companies to specialize in their areas of expertise - offering the best products at the cheapest prices.
Bargaining Power of Suppliers and Buyers
This is not a major factor in most deals but could be an important determining factor when considering taking over a company that would give you control of a larger market share.
The need to obtain bargaining power from the company's suppliers and buyers may also drive M&A activity. This can often lead to companies making M&A deals with different companies to help them achieve a competitive advantage.
The external factors that drive M&A activity in a company's industry or interest are typically identified as internal or external. They can include:
Economic conditions, such as the state of the economy, can be an important factor in driving M&A activity. When businesses are seeing strong economic growth, they may seek to enter new markets through acquisitions. This is because expanding into new markets during times of economic prosperity with less competition is easier than entering those same markets when there's greater competition due to tougher economic conditions.
When new competitors enter the market, there's often an increase in M&A activity. This is especially true if one of the main drivers for acquiring another company is to expand.
Consolidation occurs when two companies combine to form a larger entity. Typically, John Willding believes that this results in cost savings and greater economies of scale, leading to a stronger financial position for the newly formed company. For example, if two firms have similar business models and products or compete in the same marketplace, one or both might be more inclined to acquire another firm rather than attempt to increase market share on their own.
Understanding The Acquisition of MGM Studios By Amazon
The Amazon pursuit of content continues apace. The company has made many acquisitions in the last few years, including Whole Foods Market and Washington Post - but it may be acquiring another iconic brand soon, too: MGM Studios.
MGM's properties include James Bond films like Casino Royale and Rocky Horror Picture Show producer Richard O'Brien’s portfolio, which could bring some fun spinoff opportunities for Prime members who enjoy streaming these movies/shows on their devices.
This deal still requires government approval but is not expected to have any major issues getting approved given that recent acquisitions by Disney in Fox give them enough leverage over the company as well other obstacles being thrown up left right now due to this administration's policies against mergers between companies based out of America.
Mergers and acquisitions are driven by various factors, such as the desire to expand, research and development costs, new products on the market. Companies are looking for ways to stay competitive and keep up with competitors, which can often lead to multiple deals being made within a short period. Understanding these different drivers can help you decide whether or not an acquisition is right for your company.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes