What are mergers and acquisitions?
The terms, mergers and acquisitions, are often used as if they mean the same thing. But they’re not only different, they also involve separate processes. In a merger, two companies form a new organization with a new ownership and management structure. In an acquisition, one company takes over another through the purchase of shares or assets.
Benefits of M&A
Both mergers and acquisitions can dramatically reshape your company’s operations, potentially giving you a competitive edge. By spreading risk across multiple markets, they act as a safety net for your business, particularly during economic downturns. By buying another company or combining operations, you can:
- Cut costs and boost efficiencies, especially in areas, like production, distribution and procurement;
- Gain market share; and
- Access innovative technology, products and expertise—especially important in specialized industries where skilled labour is hard to find.
Key risks
The biggest risk of a merger or acquisition is financial. You might pay too much for the target company, or the expected benefits don’t happen. You also need to consider:
- Potential supply chain and productivity issues from combining two companies’ operations and systems;
- Regulatory issues, which can be complicated and time-consuming to sort out; and
- Cultural differences between countries or organizations that can lead to misunderstandings and conflicts.
Looking to support your international expansion through M&A? See how EDC's financial products can support your plans.
Why mergers and acquisitions should be part of your export strategy
International M&As are a great opportunity for exporters. They can put your company on a fast track to entering new international markets, giving you access to established distribution networks and local market knowledge. This can save time and resources compared to building a presence from scratch.
Other advantages of M&A for exporters include:
- Immediate opportunities to expand your customer base
- Local insights into consumer behaviour, regulatory environments and tariffs
- Competitive advantage from products and marketing strategies tailored to regional preferences
- Brand recognition
- Improving supply chains and reducing operational costs by using local resources and expertise
While they offer a lot of advantages, M&As are also complex and need to be carefully planned.
Get ready to grow your company internationally
Our experts have identified four key steps for a successful business acquisition venture:
While they seem straightforward, it’s tempting for businesses to skip Step 1 and immediately start searching for target companies. But the readiness and strategy step is essential when planning an M&A. It sets the stage for a smoother and more effective search for potential target companies to acquire.
Jumping right to the target search step is a misstep that Melisande Henry, a senior advisor on Export Development Canada’s (EDC) International Business Advisory Services team, has seen a lot. “Successful companies spend time considering their needs, what outcomes they hope to gain and the potential impacts of these decisions,” she says. “They have a clear acquisition strategy, which saves them time and money down the road because, when working with private consultants or other professional service providers, they are maximizing their spend on technical questions. Arriving prepared makes the process more targeted and efficient.”
Ensuring your business is ready for a merger or acquisition can help you make decisions that align with your broader business strategy. We’ve created the M&A readiness checklist to help guide you through this process.
M&A readiness checklist
1. An M&A team has been formed to guide the development and implementation of the acquisition strategy.
Why it’s important: Your team should include leadership and key stakeholders who will:
- Guide all aspects of the acquisition;
- Provide expertise in due diligence;
- Screen potential acquisition targets; and
- Integrate the businesses.
How to measure success: Your M&A team meets regularly, has defined roles and responsibilities and provides regular progress reports.
2. A corporate strategy for the next three to five years is established and identifies the target markets, along with their corresponding entry strategy, including M&A.
Why it’s important: Aligning the acquisition with your company’s long-term vision helps keep your expansion focused and deliberate, so you don’t take on more than you can manage effectively.
How to measure success: Creation of a comprehensive corporate strategy document or presentation that includes specific, measurable, achievable, relevant and time-bound (SMART) goals, and outlines clear entry strategies for each target market.
3. The motivations for the acquisition are defined.
Why it’s important: This sets a clear direction and purpose for the M&A process, so you can allocate money and resources wisely. For example, if your goal is to enter a new market, you’ll need to look for a company with a strong local presence, in addition to reviewing financials.
How to measure success: A document or presentation stating the strategic, financial and operational reasons for the M&A that can be shared across your organization.
4. The type of acquisition to pursue is defined.
Why it’s important: Each type has its own risks and due diligence requirements. Defining which one you want helps you prepare for the next steps. For example, a horizontal merger carries a risk of role redundancies, requires due diligence when looking at market share and competitive overlap and may need to focus on brand alignment.
How to measure success: The acquisition type is defined and supported by a thorough analysis and aligns with your company’s long-term vision.
5. A comprehensive organizational and market assessment that supports the acquisition strategy has been carried out.
Why it’s important: It helps reveal internal and external factors that could affect your merger or acquisition. The organizational assessment reveals if you have the resources, skills and infrastructure to acquire and integrate a new business—and allows you to address any gaps. A market assessment provides insight into industry trends, competitor dynamics and customer demand.
How to measure success: The creation of a report or presentation that highlights strengths, weaknesses, opportunities and threats (SWOT analysis) and supports your acquisition strategy.
6. Specific selection criteria and indicators for assessing potential acquisition targets are clearly defined.
Why it’s important: Specifying what you’re looking for will help you find suitable companies to buy or merge with, based on your industry and needs. Some things to consider include the target company’s:
- Size (number of employees and revenue)
- Location (country and/or region)
- Expertise, skills or operational capacity
- Production capacity (minimum and maximum)
- Markets served (territory covered and distribution channels)
- Type of customers (B2B/B2C and customer profiles)
- Corporate governance (ownership structure, commitments to environmental, social and governance (ESG) standards and diversity and inclusion targets)
- Any additional selection criteria, for example, product or company certifications, complementary research and development, etc.
How to measure success: You have a defined profile of the ideal target company with the criteria you’re looking for. It should be regularly updated based on feedback and changing market conditions.
7. A structured acquisition plan is developed, detailing financial, operational, technological and human capabilities to take on growth through an acquisition.
Why it’s important: This plan will ensure your finance, operations, information technology (IT) and human resources (HR) teams can handle the demands and opportunities of the acquisition.
How to measure success: A detailed acquisition plan that includes timelines, resource allocation, risk management strategies, a communication plan and performance monitoring. It should be reviewed and approved by senior management and regularly updated to show your progress.
8. The company has the ability—either internally or via a third-party service provider—to identify and evaluate potential targets.
Why it’s important: Your ability to find and evaluate target companies allows you to make well-informed decisions and increase value while reducing risk. Having a structured approach can also streamline the process, saving time and resources.
How to measure success: You have an established process for finding and evaluating targets, with clear criteria and methodologies. This is used to create a shortlist of potential target companies.
9. A plan on how to finance the acquisition is clearly defined.
Why it’s important: For a successful M&A, you need to consider all potential costs— including legal fees, due diligence expenses and integration costs—as well as your company’s debt, cash reserves and borrowing ability. Then, you need to consult with your financial institution and other potential sources to see what financing is available to you.
How to measure success: You have a clear idea of all your financing options and a financing plan that includes funding sources and financial models.
M&A example: Assessing readiness for the U.S. market
A checklist on paper is a great tool, but what does it look like in action? Consider Chard to Resist Organics, a fictional agri-food company that sells certified organic products. They have a strong presence in Canada’s East Coast, and export to the United States. They want to buy a similar organic produce company in the U.S.
To turn this dream into reality, they put together an M&A team led by their chief executive officer (CEO), who ensures that the project aligns with the company’s strategic vision and goals. The team includes their chief financial officer (CFO), who’ll manage all financial aspects of the purchase and ensure it aligns with the company’s financial strategy. Another key team member is their production manager, who brings technical knowledge about production capacity and the organic certifications their target company needs to have.
Together, they develop a detailed acquisition strategy that’s clearly interconnected with the company’s five-year corporate strategy. Their long-term plan focuses on the U.S. market, outlining their entry strategy and what’s driving their acquisition plans: The need to expand their brand. They decide to make a horizontal acquisition, aiming to buy a company with similar products and certifications. Next, they do an organizational assessment to find any gaps in their corporate objectives and how an acquisition could fill those gaps. They decide their ideal target is a company with at least 50 employees and annual revenues between $10 million to $25 million.
They also hire a consultant to conduct a thorough market assessment. The consultant finds that while there’s a strong demand for their products in the U.S., the shipping costs to the original target area (states along the Canada/U.S. border) are too expensive. They change their focus to Northeastern U.S., where shipping costs are cheaper and timelines are better for their perishable products.
The team uses this insight to create a list of must-haves to guide their search for the right target company. They develop a structured acquisition plan that provides a clear picture of what they can afford and how they’ll manage the acquisition.
Realizing they need help finding and evaluating potential targets, they bring in a contractor for a few months to create a shortlist of promising companies. Now, they’re ready to look at their financing options to make sure they have the capital ready when the right opportunity comes along.
Find the right support throughout your M&A journey
A merger or acquisition takes time, effort and a significant financial investment. But with a clear plan in place, it can be a very profitable strategy for your company.
If you’re considering an M&A, you’ll find resources at MyEDC to get you started, including:
- Knowledge and information about trade agreements
- Ways to identify and connect with potential partners
- How to assess competition in a specific market
- Which programs/providers could best help your company
Once your business is ready and you’ve found target companies, you’ll also find financial solutions to help you finalize the deal.
You can also connect with our partners on Canada’s trade team, including the Trade Commissioner Service (TCS) that can advise on finding trustworthy partners in new markets and provide information on trade agreements, tariffs and sanctions. With all these resources at your fingertips, you can grow your business internationally with confidence.
