The term mergers and acquisitions (MA) broadly refers to the process of one company combining with other company. In a purchase , one company purchases the opposite outright. The acquired firm doesn't change its legal name or structure but is now owned by the parent company.
Who Are Mergers Acquisitions?
Mergers and acquisitions (MA) are famously known as consolidation of companies. Differentiating the 2 terms, Mergers is that the combination of two companies to make one, while Acquisitions is one company appropriated by the opposite . MA is one of the most important aspects of corporate finance world. The main reason behind MA given, is that two separate companies come together to create more colors together to make it more valued compared to being on an individual stand. With the target of wealth maximization, companies keep searching and evaluating different opportunities available. One such possible opportunity is through the route of merger or acquisition.
Different Types of Mergers and Acquisitions:
Merger or amalgamation takes place in two forms: merger through absorption and merger through consolidation. Mergers also can be classified into three types from an economic perspective counting on the business combinations, whether within the same industry or not, into horizontal ( two firms are within the same industry), vertical (at different production stages or value chain) and conglomerate (unrelated industries).
From a legal perspective, there are differing types of mergers like short form merger, statutory merger, subsidiary merger and merger of equals.
How Mergers Acquisitions can take place:
- By purchasing the assets of the company.
- By purchasing the common shares of the company.
- By exchanging the shares for assets of the company.
- By exchanging the other company shares for this company shares.
Reasons Behind Mergers and Acquisitions:
- Improving company’s performance and accelerate growth
- Economies of scale , Financial synergy
- Diversification for higher growth products or markets
- To increase market share and positioning giving broader market access.
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