Mergers and Acquisitions (M&A) are strategies adopted to expand a business. Through M&A, assets and resources are optimised to increase efficiency and cost effectiveness.
Owners of target companies often view M&A as humiliating. M&A should be considered as a means of faster growth, smoother flow of supplies, and better distribution of finished products. Additionally, it aids in revamping production facilities, gaining stronger financial foothold and achieving optimised integration of resources. This strategy proved to be effective in the developed economies in terms of increasing shareholders’ value and management efficiency.
Employees working in companies undergoing M&A feel a sense of insecurity regarding losing their jobs, while the external customers feel uncertainty regarding the quality and price of the products. Therefore, the Post Merger Integration (PMI) stage of the M&A process is really critical. Investment bankers, lawyers, accountants and other relevant professionals must be engaged by the target and the acquirer companies. Appropriate task forces and change agents should be employed. The employees should be communicated and motivated regarding the benefits from the improved operations that can lead to better opportunities for raising salaries, status, and other benefits. These are possible because both mergers and acquisitions lead to the amalgamated company becoming stronger.
However, sometimes M&A lead to monopoly that is detrimental to an economic system. The solution is the provision of anti-trust law. Strict compliance with such provision would guard against the imperfect and unhealthy competition. Another concern is the fear of failure of M&A deals. There is at least 50% failure rate in closing M&A deals, even in a matured M&A market. In some situations, the success rate is only 20%. This can be mitigated by employing appropriate ways of pursuing the deals by engaging the right professionals and progressing along a standard track. Despite a possibility of failure, there is no good reason to let a weak company proceed toward desolation or liquidation when they can find ways of serving in a different way by being merged or acquired.
In Bangladesh, there has been a tremendous economic growth with the growth of our corporate sectors following the financial deregulation. Though the economic growth continues, some sectors are facing the challenges of stagnation and even decline of growth. The banks and non-bank financial institutions (NBFIs) can be cited as examples. The need of so many banks in such a small economy like ours may trigger a debate, but it may be viewed as normal in an emerging and free market economy. However, only the fittest will survive. Here M&A can play a great role. But lack of awareness and capacity building, paired with misconception of the stakeholders, have been barriers for M&A. In addition to taking initiatives to create such awareness in changing the mindset of the stakeholders, the investment banks in our country should focus on capacity building and engage in M&A activities.