Why businesses must consider M&A to spark innovation

Business Insights

Businesses across virtually every industry are under enormous pressure to outperform the competition. Amidst consistently rising costs and fears of recession growing, only those that are positioned to take advantage of opportunities will thrive and survive. Across financial services, technology, and consumer business, various new sectors are waking up to how mergers and acquisitions can not only place them ahead of the curve, but also allow them to innovate and expand the business beyond its organic capabilities.

From financial constraints to managerial challenges and insufficient networks, SMEs face a multitude of restrictions when trying to achieve the level of resource required to grow and innovate their business. If business leaders choose to funnel their resources towards expansion goals, they risk falling behind those competitors that streamline their operations by leveraging the strengths of M&A.

With this in mind, here are three key reasons to consider M&A as a strategy for innovation, and why there has never been a greater time to act.

First mover advantage

The first mover advantage is clear – the vast surge in post-pandemic M&A deals across financial technology proves this. When the pandemic struck, businesses across several industries struggled to adapt to the new requirement to reach customers without face-to-face methods. However, amongst the businesses that didn’t feel these pressures and easily surpassed competition throughout this period, were those that had chosen to invest in new technologies before it became paramount to do so. From enhancing customer connections, efficient processes, and adapting to changing consumer preferences, companies that had worked to innovate their offering were least impacted by the new economy.

Although the success of these companies has inspired others to follow suit, first movers still retain the advantage of strong brand recognition and increased customer loyalty. The additional time granted to develop economies of scale also enables further cost-savings whilst providing a platform for further innovation.

Observing the advantage of being a first mover, it is certain that the next few years will bring an increased focus on implementing disruptive technologies throughout industries that previously haven’t fought to innovate.

Expansion of financial resource

One of the key benefits of engaging in M&A deals is the expansion of financial support. By combining the incomes of all companies involved, the business receives an instant injection of capital that unlocks new possibilities for innovation. Without doing this, they may never be able to organically reach a position that fosters significant change within the business.

With reduced competition and more influence over customers, greater power is held by companies that possess a larger share of the market. Likewise, M&A is arguably the most effective way to make a long-term strategy become one that is relatively straightforward to achieve. Most companies that break into a global market do so after years of building the company from the ground up. However, by leveraging cross-market opportunities, businesses could almost instantly be granted access to an entirely new client base, brand, and network for distribution.

Build more powerful network

The infinitely more powerful network generated by M&A activity doesn’t solely apply to customers. Alongside a global skills shortage, various industries are reporting difficulties in attracting and maintaining the right talent. Frequently, recruitment consultants are experiencing only the largest and most recognisable brand names gaining the interest of desirable candidates. Not only does M&A generate expansion that replicates the size of its competitors to attract the most talented candidates within its industry, but it also provides an opportunity to build a team of professionals from external occupations dedicated to service innovation.

Future proofing with innovation

Besides the vast growth opportunities that M&A creates, it also allows companies to spread risk across multiple revenue streams rather than depending on a sole source of income. Particularly amidst the unpredictability of the economy that businesses must currently contend with, it is crucial that effective risk management strategies are implemented.

Although achieving the expansion discussed may seem uncertain during economically challenging times, the decision to utilise M&A to introduce innovative services throughout this period can in practice create a substantial difference in determining whether a company exceeds or falls behind its counterparts.

By Jonathon Parkinson, managing partner at Marktlink