Mergers and acquisitions are some of the most complex and potentially hazardous moves any business can make. There aren’t really set rules for success in this area. These deals are typically very complex. The benefits and downsides aren’t always black and white. Every merger or acquisition is unique and must be approached as such.

The most important factors for success are typically defined during the planning phase. It’s important to have clearly articulated and well-thought-out ideas going in from the start.

There are many merger and acquisition strategies that could be considered:

Strategy #1: Technology

In-house technology is often one of the most valuable assets a company owns. Tech companies are well known to scoop up smaller companies purely to obtain their tech. This is often with the intent of improving their own products. This can save a lot of time over developing their own analogue or waiting for the products to go to market. There is also often substantial savings over the type of agreement they would have to put into place to license the technology. The ownership of the technology also gives the opportunity to license it out to other companies as well, making it one of the most lucrative merger and acquisition strategies.

Strategy #2: Target Performance

The most successful acquisitions are those that increase the performance of the company that is acquired. When another business is assimilated care must be taken to ensure that that business flourishes. If there isn’t potential for increasing value beyond that at the time of acquisition, the investment is most likely of very poor quality. This is typically the behaviour seen by many of the top firms. The acquisition, improvement, and then reselling of a company is one of the top revenue production streams for many companies. An inefficient company is worth the time to improve.

Strategy #3: Market Access

Most start-ups fail. That’s simply the nature of the start-up. A small company is weak and vulnerable to countless factors that a larger company has the buffer capacity to weather. Reaching markets is one of these significant hurdles. A company with a great product, great strategy, and great methods can still fail if it can’t quite get over that hurdle. Sales and marketing capacity are needed that isn’t viable at small scale. A large company might acquire start-ups and small companies that they believe could succeed once past that hurdle. This strategy is typically a win-win for all, but may require the expertise of business lawyers to manage certain legal procedures.

Strategy #4: Capacity Reduction

Supply and demand are the universal law for any business of any type. The entrance of new competition can spell great hardship for the existing producers. The increased supply will drop prices for every player in the market. This can push a company with low margins into the red. In many cases large companies will buy up newcomers in order to reduce their output. If supply is harshly skewing the market this strategy can be effective and prudent. As a competitor is unlikely to cut their own production, this might be the only viable option to restore the balance of supply.

Strategy #5: Roll Up

In some markets there aren’t any predominant companies present. In these cases, the market share is spread shallow across many smaller businesses. A situation like this often has great potential for mergers and acquisitions. The small companies likely aren’t exploiting economy of scale to its greatest extent, or even at all. Mergers of several of these companies could push them over the threshold for scale. This will give the company a substantial edge over the remaining competition. This edge can open the door to further acquisitions to become even more dominant.

Strategy #6: Scalability

Economics of scale is one of the most fundamental ideas of business across all industries. Mergers and acquisitions are often undertaken to take advantage of scaling. Most companies could benefit from the improvement of their scale. In some cases, this is industry specific. Large companies might be at the most effective scale they can operate at. While there might be a threshold they could cross, this might be beyond reasonable even if several major companies were to merge. Smaller companies are the best poised to take advantage of scalability in merges.

Strategy #7: Early Adoption

Getting into the game early is one of the best strategies for mergers and acquisitions. The ability to identify potential success in the early stages of development effectively and consistently is one of the most sought-after skills in the business world. There is substantial risk involved in this strategy. If a company’s potential value is easily noticed, then it is already to late for this strategy. A company has to be willing to place substantial trust in the evaluations of its analysts. Having some picks fail is inevitable with this strategy. Patience is essential as it might take some time to pay off.

Strategy #8: Stifling Competition

In any market there is substantial pressure to reduces prices in order to achieve a greater market share. This is especially prominent in markets with many players. The more individual companies competing for the same market, the greater the pressure to lower prices to retain that share. A market with only a few large players will have significantly lower price pressure. This will allow a company to cultivate advantage through other methods that are more likely to improve their overall revenues.