Jabad Jaigirdar is the founder and Senior Partner of JLF - a Newcastle upon Tyne and London-based law firm that specialises in mergers and acquisitions (M&A) and private equity. Jabad spoke to us about how North East businesses can use mergers and acquisitions to expand and grow their operations, diversify into new markets, and increase their market share.
What are mergers and acquisitions?
Imagine two businesses join forces, combining their operations, people, and assets to become a singular and (hopefully!) stronger business: this is a merger. An example everyone will likely know is Lloyds Bank and TSB merging to form Lloyds TSB. They were merged for a number of years before later separating again.
However, an acquisition happens when one company purchases a controlling interest in another company - effectively taking it over.
Are there any key differences between the two?
In a merger, both companies typically have equal control over the combined entity, whereas in an acquisition, the acquiring company gains control. Also, acquisitions typically occur on a “clean-break” basis, with the new owners assuming all control and the sellers walking away. With a merger, there’s often the intention for the owners of the relevant businesses to continue being involved in the merged business.
What are the different types of mergers and acquisitions?
Some of the most popular mergers and acquisitions transactions include:
- Horizontal mergers – these occur when two companies in the same industry, and at the same stage of production, combine.
- Vertical mergers – this involves companies at different stages of the supply chain (such as a merger between a manufacturer and a supplier/distributor).
- Conglomerate mergers – these occur between companies that operate in unrelated business activities.
- Market extension acquisitions – this happens when a company acquires another company that operates in a different geographic market, but offers similar products or services.
- And finally, management buyouts – these occur when a company’s management team acquires a significant portion, or all of the company, from its existing owners.
Why might a business begin to explore mergers and acquisitions?
There are many reasons why a business may begin to explore M&A, but it often comes down to a party wanting to exit their business and see a capital return, or alternatively, wanting to acquire another business to accelerate growth.
M&A can provide a faster route to growth than organic expansion, allowing companies to quickly increase market share, customer base, and overall valuation.
In the context of an exit, M&As can also allow business owners to extract cash reserves out of the business in a tax efficient way.
Can any business engage in mergers and acquisitions, or do they tend to suit specific sectors of industry?
Any business can undergo a M&A transaction - it is not limited by sector or industry. Just this year, I’ve worked on M&A in Financial Services, Energy and Utilities, Real Estate, Retail and Consumer, and Transport.
M&S deals can sometimes be influenced by geography / location too. For example, in London, there is a lot of M&A activity in the technology sector. This is largely due to the rapid pace of innovation and the strategic importance of digital capabilities, driving companies to acquire or merge with smaller firms to integrate new technologies like AI, cloud computing, and cybersecurity.
What are some of the benefits of mergers and acquisitions?
The main benefit of M&A is that it allows a business to grow quickly and increase its competitiveness by acquiring market share, customers, or new regions instantly.
Most big businesses we know did not grow organically - think of global enterprises like JPMorgan Chase, or Eversheds Sutherland (my former employer!), a global law firm formed in 2017 by the merger of Eversheds LLP and Sutherland Asbill & Brennan LLP.
Expanding into new geographic regions or customer demographics is easier when you acquire a local player with existing infrastructure and brand recognition, because this normally speeds up the growth process.
And what are some of the risks?
M&A carry significant risks, and failing to thoroughly investigate the target company's financials, operations, and integration-related challenges can lead to unforeseen liabilities and losses. Poor due diligence is therefore one of the most common acquisition risks. The problem is that it gives the buyer a false sense of security, only to reveal the truth later in the form of unforeseen liabilities, financial misrepresentations, and operational challenges. All of these can then lead to more issues like significant financial losses, damaged reputation, and costly lawsuits.
Can you give us an example of a North East business you’ve supported to complete a mergers and acquisitions transaction?
We recently advised one of the largest independent accountancy businesses in the North East, Robson Laidler Accountants, on its acquisition of a major competitor, Tindles LLP, based in Teesside.
This landmark deal pushed Robson Laidler into a top 100 accountancy firm in the UK, with a combined turnover of £9m.
Where can North East businesses access more information and guidance around mergers and acquisitions?
North East businesses can find information and guidance on mergers and acquisitions from several sources. The North East Growth Hub provides a range of business support services, including help with accessing finance and funding, and connecting businesses with support advisers.
If you’d like to access free information and guidance around your business operations - including mergers and acquisitions – book a free appointment with a North East Growth Hub Business Support Adviser.