Wall Street has made its call: 2016 could be a robust year for mergers and acquisitions. With a few factors — lower, more practical valuations, for example — making buys more appealing this year, market watchers say several sidelined acquirers could get back in the game.
But other than cheap prices, why are footwear-and-apparel companies so interested in buying other brands and firms?
There are a host of potential benefits in creating new business partnerships. Here are four big ones.
International Expansion: While there are many synergies that can result from M&A, one of the most promoted is the opportunity to grow a business’s global presence. As more shoe companies seek to enter emerging markets, understanding the complexities of a country’s culture, including the buying habits of its people, can be one of the many challenges. One way to circumvent those obstacles is to align with a firm that is already doing business in the desired region.
Diversification: Companies seeking longevity never want to put all their eggs in one basket. A company with a portfolio of apparel brands might choose to acquire a fashion footwear label as a means to enter the space. This grows the firm’s reach and also allows it to tap into the expertise of an established company.
Competition: While it may be a controversial benefit, some firms engage in M&A as a means of eliminating competition. In addition to giving the company an edge, snapping up a competitor helps a firm gain a larger market share and in record time.
Product Development: Gaining new levels of merchandise expertise is another highly sought-after benefit of M&A. Potential advantages include more robust manufacturing processes, new technological insight, omnichannel development and cost-cutting as a result of combining facilities and sharing materials.
As with any business move, there are potentially negative consequences to M&A. Check out FN’s post, Analysts’ Insights on Best Practices for M&A, for tips on optimizing a new business relationship.