The Economic and Social Role of Mergers and Acquisitions
Given the large sums involved in Mergers & Acquisitions transactions and the prominence of the parties behind them, these deals often make the headlines, with coverage typically focused on the deal terms and the motivations of buyers and sellers. Yet the broader effects of mergers, acquisitions, and the sale of equity stakes in companies are rarely discussed.
How do M&A transactions affect society as a whole?
Immediately after the announcement of a company sale or merger, public attention sometimes turns to its potential negative impacts, such as layoffs, the replacement of local suppliers, reduced competition, or the risk of deterioration in the quality of the products and services offered by the acquired company. While these concerns are valid, M&A transactions also generate a number of benefits that are not always immediately apparent.
The mergers and acquisitions market plays an important role in the healthy functioning of both the economy and society.
One of its key contributions is the creation of liquidity for ownership stakes in privately held companies. Since part of the proceeds from a sale is often reinvested by sellers into new businesses, ventures, and social projects, M&A helps keep capital in motion, supporting job creation and economic development.
Another important role of M&A is the rescue of insolvent or near-insolvent companies. The sale of a financially distressed business to a stronger group can not only spare the company from the costly and disruptive process of bankruptcy proceedings, but also preserve direct and indirect jobs and protect its supplier base.
From the perspective of end consumers, these transactions may also be beneficial, as they can lead to lower prices for products and services through efficiency gains or economies of scale captured by the companies involved.
A less obvious function of M&A is its direct contribution to the democratisation of innovation. When innovative companies are acquired by larger groups or receive capital injections from investors, their innovations can be improved, scaled, and even taken across borders. Medical innovations such as antibiotics, vaccines, diagnostic technologies, and new therapeutic molecules, for example, can reach far wider populations when backed by industrial-scale production, regulatory expertise, and global distribution capabilities, raising well-being and living standards in different countries around the world.
Mergers and acquisitions can also create professional development opportunities for employees of the companies involved. As a result of a transaction, employees may benefit from exposure to new management styles, greater career mobility, opportunities for domestic and international exchange, and the sharing of best practices and know-how between organizations.
The maturity of a country’s M&A market is also closely linked to its level of entrepreneurial activity. When individuals know they may be able to sell their ownership stakes in the future, they tend to be more willing to face the challenges, uncertainties, and investments involved in building a business. In an active M&A market, the prospect of future reward increases, strengthening entrepreneurs’ appetite to take the risk of dedicating years to the development of a company. In underdeveloped M&A markets, exit options are more limited, which naturally discourages entrepreneurship.
Given these important roles, the development of a strong and functional M&A market can serve as a powerful driver of both economic and social progress.
Consistent with this broader role, market professionals and academics have increasingly advocated in recent years for a wider lens through which to assess acquisitions — one that takes into account the interests of all stakeholders involved, rather than focusing solely on shareholders.
Beyond being socially responsible, this broader view of the effects of M&A on communities, consumers, suppliers, the environment, and the labour market is also in the interest of companies themselves, as it increases the likelihood of success in their transactions. This approach recognises the undeniable link between M&A and Corporate Social Responsibility, reducing the risk of issues that could affect or even compromise a merger or acquisition.
May this trend continue to gain strength year after year, further reinforcing companies and markets all across the globe.