A guide to business mergers and acquisitions

The current pandemic has changed the landscape for many businesses, with many firms considering the viability of potential mergers and acquisitions. To assist businesses which are thinking of merging two companies or acquiring another firm, we take a look at the most popular acquisition and merger queries.

What does the current mergers and acquisition market look like in the UK?

Following Brexit, figures produced by the Office for National Statistics (ONS) pointed towards a strong year for mergers and acquisitions. The early signs for increased activity were positive, according to figures from the ONS. For example, in Quarter 4 of 2019, domestic mergers and acquisitions increased in value by £0.8 billion, compared to the previous quarter.

In addition, the Credit Conditions Survey for Quarter 4 in 2019 stated that lenders expected corporate lending to increase in Quarter 1 of 2020. However, the availability of credit can have a significant impact on the level of mergers and acquisitions. At the end of 2019 borrowing was predicted to increase, but following unprecedented lockdown measures and economic uncertainty it is unclear if the UK will still experience the anticipated rise in the number of mergers and acquisitions.

What is a merger and acquisition in business?

The terms 'merger' and 'acquisition' are generally used to describe the consolidation of companies or assets. Although the terms are often used interchangeably, the meanings are slightly different.

If a company takes over another company and becomes the new legal owner of the firm, the deal is known as an acquisition. Legally, the target company fails to exist, and the acquiring company absorbs the existing company and takes over full management.

In contrast, a merger describes two firms of similar sizes that merge together to trade as one single entity. Rather than the management continuing to operate separately, the companies may decide it is in the companies best interest to trade as one.

Why do companies have mergers and acquisitions?

The majority of businesses which merge or acquire other businesses are usually looking to stimulate growth, increase market share, gain competitive advantage or improve their supply chain.

With many businesses currently struggling as a result of the pandemic, combining business activities could be a way to improve overall efficiency and performance, with each company able to the skillset and strengths of the other.

What businesses have merged together?

Although uncertainties in the financial markets can lead to delays in the acquisitions and mergers market, the impact of the current pandemic is still unclear. However, there are some major businesses within the UK which are announcing high value mergers. An example is the £31bn merger deal of Virgin Media and O2. Telefonica, which owns O2, is the largest mobile operator in the UK and Liberty Global, which owns Virgin, hope that the 50-50 joint venture will help them challenge Sky and BT.

During the current period of uncertainty, it is important that companies continue to trade as well as possible. If your business was attractive before the coronavirus outbreak, coming through the crisis intact with a profitable business may help secure a competitive offer and fair purchase price for a merger or acquisition deal.

If your business is looking for ways to improve cash flow during the crisis, we can hep you compare a variety of business financial products to find the best deal. Whether you are looking for a business loan, a new bank account, or a competitive invoice finance quote, our innovative comparison service will help you find the best deal for your company. To find out more about how we may be able to help your company, please contact one of our experienced advisors today.

Kerry Fawcett