Horizontal M&A deals are used by firms seeking economies of scale and reducing market competition. This article will highlight the common guideline steps for a successful transaction.
The prospects of the horizontal merger
The economic essence of merger and acquisition (M&A) operations is that the integration processes, which aim at achieving competitive strategic advantages within the change management framework, are characterized by high dynamics and are carried out through the mechanisms of reorganization, restructuring, and the establishment of corporate control. Such transactions can provide economies of scale from marketing centralization, for example, by combining efforts and providing flexibility, the ability to offer distributors a wide range of products, use of promotional materials.
A horizontal merger combines two or more companies that produce the same products or provide the same services. As a result, the combined company becomes more competitive, allowing you to connect market shares, experience, and expertise while reducing costs, for example, for the management staff. The horizontal merger requires increased attention from regulatory authorities. Therefore, regulatory and legal reviews of mergers and acquisitions of this type should be carried out with particular care.
Stages of the horizontal merger: how to structure a deal correctly?
They must first be properly structured to minimize the risks of horizontal mergers. We are talking about the evaluation of M&A transactions from different points of view – legal, economic, tax, etc., followed by an analysis of weaknesses and their subsequent elimination, and includes the following actions:
- legal analysis – a detailed analysis of all stages of the transaction for compliance with the law, assessment of possible risks, development of a detailed plan for the implementation of all necessary operations, support in the preparation of the required documents, their legal assessment;
- tax analysis – assessment of the transaction in terms of tax legislation, including all countries and regions to which the newly formed legal entity will be related, selection of the optimal payment model for the transaction, calculation of the amount of taxes that will need to be paid upon its completion, selection of the form of taxation for the structure being created, providing advice on various issues that arise in the process of making a transaction;
- financial analysis – checking the compliance of the transaction with the current legislation in the field of finance, assessing the assets and liabilities of all parties involved in the merger or acquisition process, assessing the financial capabilities of the future company, choosing a merger financing model, consulting on various issues related to the procedure.
As seen from the points listed above, the evaluation of horizontal M&A transactions is a serious complex event that allows you to assess how the planned merger will benefit each of the parties, what risks threaten and how they can be minimized.
Virtual data room: arrange horizontal M&A efficiently
Support for M&A horizontal transactions includes the full range of necessary services: risk analysis of the acquired asset, development of an optimal mechanism for concluding a transaction, support for negotiations between the parties, preparation and verification of all documents that will be needed to complete a transaction, control over the signing of an agreement and evaluation of its results. Today all these activities can be easily optimized in a data room software for organizing secure business collaboration.
The data room allows you to automate all processes related to contractual activities – ensuring the structured storage of contracts and organizing joint work on their coordination and control over execution.