If you are seeking to grow your Maryland business, you may consider creating a merger and acquisition (M&A) strategy. Merging with or acquiring new businesses allows you to offer a greater range of products and services, grow your customer base and maximize your profits.
There are various types of M&A strategies, any of which might be right for your business. Before you decide on a strategy, it is important that you know your business inside and out.
Vertical and horizontal M&A strategies
A vertical M&A strategy involves two businesses operating at different stages of the supply chain coming together to create an integrated product or service. This strategy offers higher profits, lower operating costs and increased efficiency. However, drawbacks include potentially different business cultures and possible loss of employees if roles are combined.
A horizontal M&A structure involves two competing businesses combining to reduce or eliminate competition. Less competition and larger market reach are obvious benefits of this type of structure, as well as increased revenue and the ability to offer new products and services.
You can expect an increase in regulatory scrutiny after this type of merger. This could mean less independence and control over major decisions. Additionally, your existing customers could prefer your pre-merger products and services versus the new ones, resulting in loss of revenue.
Market and production M&A strategies
Market and product extension strategies involve two businesses coming together. A market extension strategy occurs when two businesses offer the same type of product. This provides an increased client base and market, but this strategy often means more responsibility.
A product extension strategy involves the merger of two companies in the same market who provide different products. Rather than expanding into new markets, your goal is to diversify your products and services. This strategy can reduce your operational costs but comes with the potential to reduce the efficiency of your production process.
Once you have selected a strategy, determine the goal you are trying to achieve and your timeline for completing the merger or acquisition. Determine who will be involved in the process and their roles. These are just some factors to consider before deciding on the right strategy.