Sustainability is no longer an afterthought in the corporate world. It’s front and center on the minds of leaders looking to position their companies well for the future. It entails a rapid and wide-ranging shift in how big companies do business. A shift this drastic can sometimes be completed in-house with existing resources and capabilities. But sometimes, a big brand needs to look outside of its walls to improve its business model. This is where mergers and acquisitions, also known as M&A, come into play.
M&A activity involves two different companies combining in some form. A merger is when two similarly sized companies combine to form a new bigger entity. An acquisition is when one bigger company buys a smaller one. M&A is quite common in the corporate world, and the motives used to justify it are wide-ranging.
Sometimes, companies simply want to improve their efficiency. Many of a company’s costs can become unnecessary as a result of M&A activity. For example, two similarly sized companies might not need to keep their separate human resources departments, allowing them to cut costs without hurting their core business.
Other times, companies engage in M&A activity because they have excess cash lying around that they can deploy to make money. As such, M&A often proliferates when an industry is doing well or when an economy is doing well, both of which provide the conditions necessary to take bigger risks.
M&A is on the rise in the sustainability realm for some of these reasons. Some fast-growing companies want to be more efficient. Others want to take advantage of the cash they’ve earned to expand their impact. But right now, a combination of unique factors is presenting some other motivations for sustainability M&A activity.