Mergers and Acquisitions

Mergers and Acquisitions

Mergers and acquisitions (M&A) are defined as a combination of companies. When two companies combine together to form one company, it is termed as Merger of companies. While acquisitions are where one company is taken over by the company.

• In the case of Merger, the acquired company ends to exist and becomes part of the acquiring company.
• In the case of Acquisition, the acquiring company takes over the majority stake in the acquired company, and the acquiring company continues to be In existence. In short one in acquisition one business/organization buys the other business/organization.

Definition:

Merger – When two companies combines together to form one company, it is termed as merger of companies. The two companies end to exist and new company is formed.

Acquisition – In case of acquisition, the acquiring company takes over the majority stake in the acquired company, and acquiring company continues to be in existence.

Companies:

Merger – The companies of same size are combines together.

Acquisition – The larger companies acquires smaller companies.

Challenges:

Merger – The two companies of the same size combine to increase their potential strength and financial profits along with breaking the trade barriers.

Acquisitions – The two companies of different sizes come together to conquer the challenges of decline of business.

Agreement:

Merger – A buyout agreement is known as a merger when both owners mutually decide to combine their business in the best interest of their firms.

Acquisition – A buyout agreement is known as an acquisition when the agreement is aggressive, or when the target firm is unwilling to be bought.

How Can Mergers & Acquisitions Take Place?

- by purchasing assets
- by purchasing common shares-
- by exchange of shares for assets
- by exchanging shares for shares

Types of Mergers

-   Horizontal Mergers
 Horizontal mergers happen when one company merges or takes over another company that has similar products and services, which means that both the companies are in the same industry.
-  Vertical Mergers

In the vertical merger, there is a combination of two companies that are in the same business of producing the same goods and services, but the only difference is the stage of production at which they are operating are different.

-   Concentric Mergers

Concentric mergers are between firms that serve the same customers in a particular industry, but the products and services offered are different.

-   Conglomerate Mergers

When two companies that operate in a completely different industry merger together to form a new company it is known as a conglomerate merger.

Reasons for M&A

-   Mergers and Acquisitions (M&A) improves the quality of companies performance by reducing the redundant cost of operations
-   Removes Excess capacity
-   Accelerate growth
-   Acquire skills and technology