While studying finance, you’ll come across the terms mergers and acquisitions for sure. In this guide, you’ll learn about the importance & examples of mergers and acquisitions.
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What are Mergers and Acquisition?
Mergers and Acquisition (M&A) is a general term that refers to the consolidation of various companies or assets through different financial transactions. These transactions include mergers, acquisitions, consolidations, purchase of assets, and management acquisitions. To explain the two terms separately, acquisition refers to the process where one company purchases the other outright. In this case, the acquired firm doesn’t change its legal name or structure but is now owned by the parent company. The merger company is the combination of two firms, which form a new legal entity under the banner of one name.
Importance of M & A
- M&A covers one of the major aspects of the corporate world.
- Consolidation of companies provides more value than a single one.
- Acts as a route to help companies in evaluating different opportunities.
M&A Can Take Place:
- By purchasing assets and common share
- By exchanging of shares for assets and shares for shares
Steps Involved in Any M&A
Phase 1- Self-assessment of the acquiring company with regards to the need for an M&A.
Phase 2 – Search for a good strategic fit for the acquiring company.
Phase 3 – Detailed analysis of the company after being shortlisted.
Phase 4 – Start negotiations to come to a consensus for a negotiated merger.
Phase 5 – Formal agreement of merger by both the participating companies.
Types of Mergers and Acquisitions
In the various mergers and acquisitions, here is a brief overview of some common transactions that fall under the M&A.
- Mergers
- Acquisitions
- Consolidations
- Tender Offers
- Acquisition of assets
- Management acquisition
Types of Mergers
Mergers alone can be structure into multiple ways based on the two companies in relationship with the deal. Based on the various measures, the main types of mergers are as follows.
Horizontal Merger
The first merger type includes two companies in direct competition and shares the same product lines and the market.
Vertical Merger
In this type of merger, the set up brings together a customer/supplier and a company. For example, a cone supplier merging with an ice cream maker.
Congeneric Merger
This type of merger includes two businesses that serve the same customer base in different ways—for example, a tv manufacturer and a cable company.
Market- Extension Merger
The type of merger includes two companies that sell the same products in different markets.
Product – Extension Merger
In this type, two companies selling different but related products in the same market.
Conglomeration
Conglomeration is the type of merger where two companies that have no common business areas.
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