M&A is a reference to either the merging of two companies into a new, separate company, or, the buying of one company by another. M&A finance appears to act as a sort of ‘be all, end all’ situation; either you merge or buy. Alternatives have sprung up for the sake of allowing companies to simultaneously combine resources without changing their business as an entity in its own right. In other words, a company can share resources, with less risk to the overall business and its day-to-day financial running.
In essence, M&A is about expansion and growth with another business. There are several examples of alternatives to M&A finance, one being Joint Ventures. Herein, two companies combine their resources for a particular purpose. This venture in itself is separate for each individual business and its respective pursuits.
In terms of risks, each company involved shares losses, gains, and general costs. Although is a great way to lessen risks, the question of leadership and decision-making can create friction. For instance, if one company were to have expertise that may benefit the joint venture in a specific circumstance, does that company get a bigger share? Thus, joint ventures require great managerial and coordination skills by all participants.
A second alternative to M&A financing is general market collaboration. Much less formal then joint ventures, market collaboration allows companies to market their brands and services together. Companies may reap the rewards of, say for example, the introduction of their company and service/product to another’s audience. One thing businesses always need is more awareness. In this way, one company could piggyback onto another audience, or, both companies could combine their marketing abilities in one platform to increase appeal, notoriety and profits. Unlike M&A or joint ventures, general collaboration presents less decision-making hurdles.
Finally, a relatively new and specific alternative to M&A is a go it alone strategy funded through mezzanine financing. Mezzanine financing basically allows a company to receive capital via loans without any real collateral. This is similar to debt and equity financing. The risk is fairly low, however, due to the lender being the last to be paid (when compared to loans taken from the bank), the interest rates arerelatively high. However, Mezzanine financing is functionally closer to equity than it is to a bank loan. With this type of funding behind you, your business can go far and increase your chances of a successful go it alone growth strategy.
Such a method leaves the business in its own hands as opposed to being responsible for other companies also needing to benefit to maintain the agreement; unlike joint ventures. Nevertheless, there are downfalls. Suppose the projections made by the company are inaccurate and they default, this may lead the company to lose control to the lender and others. Yet, if cash flow is good and management is talented, a go it alone growth strategy can be a very prosperous route.