Overview of Mergers & Acquisitions
Mergers and Acquisitions (M&A) involves the process of combining two companies into one. The thing of confluence two or further businesses is to try and achieve community – where the whole ( new company) is lesser than the sum of its elements ( previous two separate firms).
Mergers happen when two separate entities join forces. Such deals generally take place between two businesses that are of the same size, providing advantages to the other's offers in terms of adding deals, edge, and capabilities.
On contrary, acquisitions happen when one company buys another company and molds it into its operations. It depends on whether the company being acquired believes it’s better off as an operating unit of a larger company or not and whether the acquisition is friendly or hostile.
The end result of both processes is the same, but the relationship between the two companies differs grounded on whether a junction or accession passed.
Benefits of Combining Forces
Some of the M&A benefits have to do with the usefulness, and others have to do with capabilities, like:
- Higher scale economies
- Increased market share
- Increased distribution capabilities
- Reduced labor costs
- Talented labor force
- Better monetary resources
Types of Mergers
There are 5 commonly types of company mergers, namely
- Horizontal Merger
- Market Extension Mergers
- Product Extension Mergers
- Vertical Merger
Firms that are engaged in totally unrelated business activities merge.
Merger between 2 companies who deals in the same services and products.
Mergers involving companies that sell the same product across multiple markets/geographic areas.
These mergers involve companies that sell different products in the same market or products that use the same marketing channels but are not directly competing.
In conglomerates, different but related products are sold in the same market, or subsidiaries use the same marketing channels.
Every M&A and private equity transaction has to abide by various tax and regulatory requirements, be it while contemplating a strategic acquisition, divestment, corporate restructuring, merger, demerger, business/asset sale, reduction of capital, buyback, balance sheet right-sizing, inbound or outbound acquisition, sale of shares or any other form of restructuring.