If a company wants to accelerate its growth process, one of the options that can help it realize this is through mergers and acquisitions. More often than not, business leaders prefer this method because it is the fastest, and with the advent of technology, the speed of the transaction has increased even more. The main purpose of M&A is to take advantage of the synergies that arise from the successful interaction of combined companies. Nevertheless, each transaction case is unique and has its specifics and pitfalls. In this article, we will provide key information about M&A transactions.
What is the M&A process?
First of all, it’s worth pointing out that mergers and acquisitions are two different processes that are often confused with each other. Indeed, the concept of these transactions is quite similar: two companies that previously were independent entities, now work together to achieve a common goal. However, it is worth pointing out the main difference, the merger implies a merger of companies on equal terms to become one unit, while during a takeover, companies form a parent-subsidiary relationship in which one buys shares of the other and it is expected that following the merger, the value of these assets will significantly exceed the purchase price of the company.
Reasons for M&A transactions
At this point in the introduction to mergers and acquisitions, we will highlight the main reasons why companies may decide to pursue M&A:
- Strategy -M&A brings companies strategic advantages through which they expand their workforces and scale their companies
- Value -In today’s market, financing is a reliable way to add to your capital. Buyers can combine ways to pay for an acquisition, such as using cash in half with their stock. Sellers at this time are eager to accept such a deal and continue to work together to increase shareholder value
- Industry trends -Companies are coming together because of rapidly changing trends, such as technology, consumer preference, cost control, and declining demand, to remain relevant despite shifting market positions
- The need to transform their style – This way, companies can improve their reputation and create a new, more appealing image for customers
- Expanding market share – This way they can consolidate their market position reliably and it is more reasonable than other ways of getting a foothold in a foreign market from scratch
- Agreement of competitiveness – Combining the company will cover a larger market share, as well as unite the companies’ customer bases, and expand production
- Investment -Sellers willingly agree to charge buyers’ shares as payment because they see great potential in making an IPO. IPO transactions have risen significantly from the value in when of the 1990s
Types of mergers and acquisitions
Below we identify the main types of mergers and acquisitions and their characteristics:
- Vertical Merger -The most common type of merger, performed by companies that provide the same services or products. By merging, they benefit from increased assets and operations in the supply chain
- Horizontal mergers are mergers of companies that were market competitors before the transaction, by which they increase their market share and reduce operational costs
- Conglomerate mergers – in this case, there is a merger of companies that produce completely different products or provide different services. Oddly enough, this can also be profitable, because it helps to cross-sell products, as well as diversify the portfolio of stocks, services, and assets. This type of merger is divided into two more subparts: pure and mixed. In the first case, the companies do not have any common products, and in the second, respectively, have some similarities