M&A stands for the English phrase Mergers and Acquisitions, or fusiones y adquisiciones in Spanish. A merger refers to the union of two or more companies to form a new company, which is created through the merger of those companies. An acquisition, on the other hand, refers to the full or partial purchase of a company under the agreed terms; the acquired company can therefore be integrated into the buyer or remain independent.
The main advantage of mergers and acquisitions is, above all, the inorganic growth the company experiences through the deal. This type of growth, much faster than organic growth achieved over months and years of developing the business, can increase competitiveness, eliminate duplication, streamline costs, and help achieve higher performance.
It also consolidates the business and builds a stronger market position, since buying and integrating the company involves acquiring brands, customer portfolios, supplier relationships….
However, it's very important to carry out a thorough analysis beforehand so that these advantages actually materialize after the deal: checking its viability, whether synergies exist and how much they're worth, its financial and operational potential, and how these factors relate to the cost of the acquisition or merger. A poor, superficial upfront analysis can produce the opposite of the desired effects.
Today, the proven superior returns of inorganic growth strategies compared with other growth and investment models, along with the easier flow of capital and information around the world thanks to technology, and the need for all kinds of investors to find attractive returns, are driving the global market for mergers and acquisitions to break records in transaction volume. We shouldn't forget that M&A processes are one of the most widely used methods for growing companies, and inorganic growth is establishing itself as the most effective and profitable path compared with other routes to business growth.
Alongside this growth, “new needs” are emerging, and it's essential that they go hand in hand with technology, since it can help speed up processes and minimize existing operational risks, making work more efficient.
New technologies and the digitalization of the economy are transforming business models, and the M&A industry is no exception: it is undergoing profound changes in how deals are approached and structured, in order to increase agility and efficiency.
The importance of the cycle
In sports, you train to stay in good shape and to win. In the same way, in the economy, companies train to become as profitable as possible and to generate as much value as they can. Like most things in life, every effort has its reward and every road has its end. That's why many entrepreneurs, at the end of their careers, decide either to hand over the reins of the business to the next generation of the family or to monetize all those hours of effort by selling the company.
Types of deals: a brief overview
Selling a company, a division, or part of its assets is a significant event for shareholders, the management team, employees, and other stakeholders. It's an intense process that requires considerable effort and usually takes between 4 and 6 months. Different reasons drive companies to make a decision like this. As for types of deals, the main ones are:
- Spinning off or selling a business division as Liberbank did with its 20,000 point-of-sale (POS) terminals, reaching an agreement with UniversalPay for close to €8 million.
- Selling part of its assets as a block as Iberdrola planned with its natural gas plants in the United Kingdom; or…
- Selling the entire company as the owner of Cirsa recently did. Cirsa is a leading company in the gaming sector, with more than 16,000 employees across its more than 400 gaming venues (bingo halls, casinos, gaming arcades, and sports betting outlets) located in 11 different regions. Manuel Lao, the company's founder, has sold what was his day-to-day life for many years for a price of between €1,500 million and €2,000 million to Blackstone, one of the largest private equity firms in the world, with close to $111 billion in assets under management.
