December 10, 2015

Reducing Internal Company Risks Through Complementary Acquisitions is pretty good for explaining elementary M&A concepts. Here’s the intro from a blog about complementary acquisitions:

Understanding where one is weak can prove to be a strength. This is especially true when the known weaknesses are eventually eliminated. When weaknesses are inherent in a company, it can create risks to the capital invested by shareholders and lenders. One way to overcome such weaknesses and risks is to eliminate them by acquiring complementing strengths. The following items showcase company weaknesses and risks that can effectively be remedied with a little M&A.

Regulatory & Legal Risks

– Companies in nonregulated industries could represent a fine target if a buyer is seeking to assuage some of the existing and burdensome compliance and legal issues. The reverse is also true. A company in a more pristine regulatory environment may be wholly unprepared when seeking acquisitions in a similar, but more regulated vertical.
– Poor union relations can be more easily be offset by acquiring a company in a similar, but less nonunion sector to help offset greater exposure to employee strikes.
– Market concentration risk can be reduced by acquiring a company with a less concentrated industry focus, further diversifying the market risk profile.
– Firms in a higher tax bracket can reduce taxation risk by acquiring a company with legitimate tax advantages. We’ve seen, helped and know of firms that have successfully done this work through the successful acquisition and restructuring of firms with high net operating losses. Other options are also available here.
– Weak intellectual property protection (e.g. trademarks, patents & copyrights) could be offset by acquiring or licensing the necessary patents to avoid later legal conflict over the lack of legal protection.
– When a firm has inferior or insufficient technology, a target acquisition may help to offset the lack thereof.