One of the types of projects that require financing in the business world is the question of acquisition or merger of one company by another. During the Due Diligence process there are, of course, many types of questions and/or points that must be adequately addressed and one of those issues that we would like to discuss in this note is in regards to the “fit” of the two businesses. In other words, in some acquisitions or mergers there is a particular benefit that comes from combining the two corporate entities and many times validate the reasoning for the acquisition – if there is a fit between strategic goals of the two companies; or whether the corporate goals and product strategy the same or do the two companies have severely different lines causing the formation of a conglomerate.
Another example may be for financial reasons; a “buyer” company (or acquirer) may have product lines in the maturity stage that have been successful over many years, and thus it has cash reserves. Thus, the “buyer” can make a cash purchase on a company that is still in a growing stage and support new promising product lines.
Some other reasons may be that the personnel of the two organizations have a similar work and ethics environment and would be a natural fit. Some mergers or acquisitions are also carried out for geographic goals, such as expanding the reach of business.
The reasoning for a merger or an acquisition does not rely on the question of “fit” alone, however, and one must understand this element first before moving ahead.
Always make sure that you make an informed decision in all cases,
All the Best,