What Are the Key Objectives of Acquisitions and Mergers?
October 3rd, 2019 (Updated 03/23/2021) | 5 min. read
By Duncan Hendy
What are the objectives of mergers and acquisitions in a pricing organization?
Acquisitions and mergers, the processes where a business either acquires another business along with all of their assets or when two businesses combine their total assets to form a much larger business with the best of both worlds.
The objectives as well as the benefits of a merger or an acquisition are numerous: to mitigate the weaknesses of either business and to bolster their combined strengths, to remove a competitor or threat within their industry, or to undergo a period of exponential growth in a short space of time.
Whether a business chooses to acquire another, merge with another or even be acquired themselves, there are a great number of benefits to alleviate the potential drawbacks.
Throughout this article, we will cover the main objectives of mergers and acquisitions, why a merger and acquisition may be the right choice for your business and what to expect from it. Each of these will relate to the pricing industry to which Pricefx provides holistic price optimization, management and realization software.
One of the key reasons for which a business would choose to undergo an acquisition or a merger is in the sheer potential for growth. By taking on or combining the assets of another business, regardless of its size, your business will increase its market share. This typically leads to a dramatic increase in sales and, as such, profitability.
Customers Through Mergers
In an ideal situation, your business would gain the entire customer base of the business that you acquired or merged with. Whilst this isn’t always true, the end result is sure to show a significant increase in your customer base. Customers themselves can be incredibly loyal to brands and, as a consequence, make it far more difficult to acquire customers from another business within your industry through conventional methods. An acquisition or merger, managed correctly, may prove beneficial in maintaining your existing customers and bringing over a vast array of new ones. A pricing team can look at the pricing strategies from which customers benefit from both businesses prior to the merger or acquisition and develop a stronger overall strategy for the newly combined business.
Greater Market Control
With each business within any given industry, controlling a portion of the market, a merger or acquisition increases the total market share of the combined business. This allows pricing teams greater control of the overall market and, as a result, gives the opportunity for their pricing strategies to have a much larger impact on the industry as a whole.
The Acquisition and Merging of Skills and Technology
With a successful acquisition or merger completed, the resulting business may now have all of the skills and technology of the two initial businesses. Whilst this is not always the case due to licensing, third parties and loss of staff, a successful acquisition or merger should be leveraging the resources of the newly united businesses.
However, a merger or acquisition is an ideal time to innovate within the industry and bring in new technology and skills to further advance the business. In a period already rife with change and development, employees are more open to new systems and software that can benefit the business. Pricefx specializes in providing pricing solutions to B2B and B2C companies, the transition to our cloud-native software as a service is truly complemented by the period of innovation that a merger or acquisition brings.
Improving the Industry Overall
The impact of a merger or acquisition can be industry–wide. The more market share the combining businesses possess, the greater the industry is affected. This can prove beneficial overall as now other businesses within the industry must innovate and improve their service to avoid falling behind the merged or acquired business. The competitive environment within any industry can be shaken up and reinvigorated by such an impactful event.
Unlocking Value in a Merger or Acquisition with Pricing
The function of the pricing team within an acquisition or merger is to value the business that you are acquiring alongside any additional benefits expected from the merger after removing the cost of the acquisition or merger itself.
As acquisitions typically cost the acquiring business more than the value of the business acquired, the pricing strategy must ensure that the cost does not exceed an amount that would result in no net benefits. To avoid loss on the acquisition or merger, the pricing strategy must control the offer at a reasonable amount to provide value to the transaction.
Finally, following the acquisition or merger of the new business, your pricing strategy must account for the integration costs. All of this must be considered when choosing a company to acquire or merge with as if the integration costs increase too much, the transaction loses profitability and, as such, any value.
How to Manage Pricing Throughout the Merger or Acquisition
The ideal way to manage the merger or acquisition you are undertaking is with our software as a service, cloud-native solution. Our products are flexible to the individual client and our software reduces downtime significantly, something which your business cannot afford to suffer during a merger of acquisition. Pricefx’s inhouse project leaders and highly experienced customer success team are on hand to ensure that your transition to our software as a service runs as smoothly as possible and that your team is fully trained to use it.