When is M&A a good idea?

Apr 27, 2023

As a business owner or operator, you know that assets and facilities are vital to your operations. However, there may come a time when certain assets or facilities fall outside of your core business focus, or, you need access to additional assets to fortify your operations. A strategic merger and acquisition (M&A) may be the right solution, but how do you know if it’s right for you? You’ll need to consider these four factors:

1.    Financial health

2.    Operational efficiency

3.    Strategic fit

4.    Potential risks and challenges

Financial Health

One of the most important considerations when evaluating an asset or facility is its financial health. Financial health is a comprehensive metric meant to quantify the asset’s value. Any of these factors can impact asset valuation:

  • Current asset value
  • The potential for appreciation or expansion
  • Market trends
  • Industry changes
  • Regulatory policies

Suppose you own a peripheral pipeline that has seen declining demand due to changes in the energy industry or changes in your operating region. In that case, consider selling that asset to realize the best return on your investment. On the other hand, if you’re considering buying an asset, you’ll want to evaluate its growth potential and profit history.

Operational Efficiency

Operational efficiency is another critical factor for evaluating assets and facilities. It’s important to assess operational costs, profitability, the impact of technological advancements, and the effects of infrastructure upgrades.

If you own an asset or facility requiring significant maintenance or repairs, selling the resource may allow your company to better achieve its objectives and to refocus on its core competencies. Similarly, if you’re considering buying an asset or facility, you’ll want to evaluate its potential for operational efficiency and how it can help you achieve your business goals.

Strategic Fit

Assess the alignment between an asset or facility and your core business focus. Evaluating the long-term value and sustainability will help you determine if the asset or facility is a good fit.

For example, if you own a facility that doesn’t align with your core business strategy, selling it will free up time and resources to invest in your core operations. On the other hand, if you’re considering buying an asset, you’ll want to evaluate how it fits your overall business strategy and can help you achieve your long-term revenue goals.

Potential Risks and Challenges

There are many risks and challenges associated with M&A’s, including legal, financial, and operational risk. Because of these risks, comprehensive analysis and research into the consequences of an acquisition or divestiture must be completed as a first step.

Buying or selling assets and facilities can be complex, and companies must consider many factors when deciding. By assessing the financial health, operational efficiency, strategic fit, and potential risks and challenges of an asset or facility, you can make an informed decision that aligns with your business goals and helps ensure long-term success.

With a secure asset listing platform that actively markets peripheral pipelines and facilities, you can access a marketplace that connects you with potential buyers or sellers who share your vision for success.

For more information, visit our website https://www.midstream-holdings.com/