6 Ways How Small Businesses can use Mergers and Acquisitions to their advantage

6 Ways How Small Businesses can use Mergers and Acquisitions to their advantage

Mergers and acqusitions

Mergers and acquisitions are like marriages. They are the bringing together of two individuals. If you wouldn’t marry someone for the ‘operational efficiencies’ they offer in the running of a household, then why would you combine two companies with unique cultures and identities for that reason?

Simon Sinek


If you have talked to someone in the corporate world before you have probably come across the terms Merger and Acquisition (usually shortened to M&A). In close relation to that are the terms consolidation and amalgamation, which are usually used interchangeably with the term merger.

To begin with, lets, define a merger as “an absorption of one corporation into another…”, (like what happened between Warid and Airtel in 2013), and acquisition as “when one firm buys majority interest in another, but both retain their identities.”, (similar to what happened when Kenya’s Brookside Dairy acquired Sameer Agriculture and Livestock in 2015). The difference here is that in the former both companies are extinguished and in the latter, they both retain their legal status.

Benefits of Mergers and Acquisitions

Like in any business venture the field of mergers and acquisition is not a straight forward path to success. However, let’s look at some of its perks;

  • Penetrate new market; increasing the market share of a business may be the most convincing reason to merge. For instance, if two banks merged, the one with fewer branches countrywide would benefit from having a bigger client base in areas they had no branches in. For example, when DFCU Bank Acquired Crane Bank Ltd, DFCU had fewer branches but was able to have branches in areas where they didn’t have.
  • Better fulfil consumer needs; seeing as customer satisfaction is the prime goal in the service industry, one can, therefore, say that a strategic merger can help one business increase its number of products. An example would be the increase in the product variety
  • Product innovation and development; this is usually a clear advantage for companies that are in the field of product invention and innovation. As the old saying goes, two heads are better than one – combining personnel widens a company’s overall talent and innovation base.
  • Key personnel and talent; combining two companies means their different personnel will be required to work in unison. Companies that have less expertise may leverage this position to learn from their sister company and in the end, this sharpens every employee’s skills at individual level.
  • Improve financial power; when two companies combine effort they, in turn, increase their revenue. This, in the end, increases their cash flow, their creditworthiness and their investment budget, such a company is likely to grow exponentially in a shorter time period.
  • Synergies and economies of scale. An amalgamation of businesses through an M&A process can help provide the combining companies or businesses with synergies and economies of scale that can lead to greater efficiency and profitability.

Disadvantages of Mergers & Acquisitions

The notable disadvantages of M&A’s are mostly to the consumer and include;

  • Higher product price
  • Limited variety of products for consumers
  • Loss of jobs in more strategic M&A’s
  • Clash of Cultures
  • Consumer Perceptions
  • Diseconomies of Scale

What you need to know

Unlike Kenya, Uganda has not yet passed its competition laws and therefore that leaves a significant grey area in the field of Mergers and Acquisitions, that is not to say that one cannot go ahead and make this kind of decision for their company. Uganda being a member state of the Common Market for Eastern and Southern Africa (COMESA) is subject to the COMESA competition law regime. One of the core functions of COMESA is to promote trade and investment in the Common Market rather than seeking to ensure domestic compliance with its regulations.  You also need to know that Uganda is also a member of the East African Community and is therefore also subject to the East African Community Competition Act, 2006.

Apart from these regional instruments, Uganda does not have a single legal regime that has been made to exclusively regulate the conduct of mergers and acquisitions save for the Uganda Competition Bill which will be the first piece of legislation to exclusively do so. There is indeed a fragmentation in the legal and policy framework on aspects related to the promotion of fair competition and consumer protection in Uganda. Mergers and acquisitions are regulated by the sub-sectors through their particular established sectorial laws. Some sub-sectors have got the exclusive and primary sections of the law setting out their jurisdiction over takeovers and acquisitions while some have got the exclusive regulations on the same. 

On the other hand, Uganda does not have a principal regulator of mergers and acquisitions. The Ministry of Trade, Industry and cooperatives with the approval of Cabinet put in place the National Competition and Consumer Protection Commission to among others regulate, control of mergers and acquisitions but this Commission is not yet operational.

The current legal and regulatory framework related to the regulation of mergers and acquisitions, amalgamation and takeovers are fragmented. Mergers and acquisitions in Uganda are regulated by the sub-sectors that have established sectoral regulators to approve them. The sub-sectors have the exclusive and primary jurisdiction over takeovers and acquisitions. These sectors include Telecommunications, Insurance, Financial Services, energy and pharmaceuticals

To be safe, it is advisable to seek the services of a legal professional before you engage in this procedure. The legal professional will advise you on the due diligence and background checks to be done on both companies, the minimum requirements to be met and the procedure to conclude the process.

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