Merger and Acquisition(M&A)

merger and acquisition

Merger and Acquisitios refer to the process of combining two companies into a single big company. The main purpose of the merger and acquisition is to make two companies into a single big company and try to achieve some teamwork goal. 

Merger and acquisitions both are in different forms but have some similarities also. Each having its own side of the story. If you want to understand the term Mergers and Acquisitions then continue reading this blog. We will briefly describe both terms. 

Merger and Acquisition

What is Merger?

Merger refers to when two companies join their hand to work together. This type of merger happens between two companies that are having the same size. The main advantage of the merger is to increase the sales, efficiency, and capabilities of the companies. A merger happens with mutual understanding and with the legal formalities between two and more companies. The merger process is very friendly for the companies because they will make long-term relationships with partners. Mostly when mergers happen stocks of these companies are suspended and they again reissue new stock with a new name. After the merger equations of companies will be

A+B=C

What are Acquisitions?

Acquisitions refer to when one company takes over another company and folds all its operational works and decisions making authority. This type of acquisition happens between large and small or between large and large size companies. It depends on the situation and the condition of the company. Sometimes this happens on a friendly basis and sometimes this is forceful when the company is not able to fulfill the desired output. The stock of the takeover company continues to be traded in the market. After the Acquisition the equation will be

 A+B=A  

Mergers and Acquisitions

What sort of Mergers and Acquisitions mostly happen?

Mergers and Acquisitions

There are three sorts of Merger and Acquisition :

  1. Based on the line of business Activity: This type of merger and Acquisitions mostly happens with some line of business activities. In this section, 3 more categories are there
    • Horizontal: In this category, only mergers of similar sizes and types of companies can happen. This means the companies of the same product can combine their activities with each other. The reason for this merger is to reduce the competition in the market. So that the companies can get more gain and rule the market. The best example of this type of merger is between coca-cola and Pepsi.
    • vertical: In vertical mergers, a company mergers on some partial things like if a company provides the raw material to another and the other company will make the product on the basis of the raw material. This type of merger happens where two companies are producing products of the same line at different stages. This type of merger helps to increase the profit margins of the companies and saving their cost and time.
    • Conglomerate: This type of merger happens between different sets of companies whose are having different products and their activities are also different from each other. The main advantage of this merger is to increase the diversification of the companies. After the merger sometimes the old goodwill of the company helps to increase the profitability of the companies. With this merger, your extra resources will be properly utilized.
  2. Based on the bid of controlling interest: This type of merger and acquisition happens on the bid-basis for controlling the interest of the company. This is also of three types:
  • Friendly: When the company acquires the company with some motive and by mutual agreement then this type of merger is known as a friendly merger. In a friendly merger, you will get an extra price which is compared with the market rate.
  • Hostile: When some forcefully acquire you, against the wish of the owner of the company. It is just like putting someone in jail without any fault. This hostile merger took place when some company not able to fulfill its desired output and the other company forcefully take over the operations and legal authority. 
  • Bailout: This type of merger is helpful to help the weak company to regain its strength. This happens when some company losses its financial stability then some government and some other organization take over the company.
  1. Based on the strategy transactions: This type of merger and Acquisition mostly happens when the stock of the companies goes in loss and the value of the assets of the company goes higher. This happens to gain the efficiency and profitability of the company.

Advantage of Mergers and Acquisitions

  • Scalability: This helps to improve the scalability of the company. When a merger happens we will able to purchase a large amount of raw material and your cost will be reduced.
  • Large scale Market holder: This helps to Increased market share. When two companies of the same types come under one roof then you will able to hold a large number of market scale and you will rule the market with price and strategies.
  • Large Distribution centers: This helps into Increased distribution capabilities and centers also. after the merger companies will able to increase their distribution network and center. Also, their product will start selling at new outlets which other companies are holding.
  • Labor cost: It helps us to reduced labor costs. When a merger happens we can fully utilize our resources and avoid the requirement of staffing.
  • Talented Labor cost: Our talented labor use is improved. With this, we can share a large number of labor between the companies and this will fulfill the experienced and talented need. This way our growth will be increased and quality also.
  • Efficiency Increased: This helps us to increase the financial of the resources. Now the two companies are joined and the financial value is also increased and we can easily invest in new things.

Disadvantage of Mergers and Acquisitions

  • Expensive: With you do mergers and acquisitions then expenses of doing the acquisition and merger are increased. when investors are involved in buying then you have to bear the expense. You don’t have a choice. 
  • Legal Expensive: Legal expenses will also go higher because all documents work and other legal work is increased so need to hire someone who will do on your behalf.
  • Working hours increased: When you take over some company then you need to concentrate on that company also. Now you have companies to concentrate on. So working tie is increased, you need to deal with two.
  • Negative Goodwill: Sometimes take over someone else company gives you negative publicity. Which may affect the stock prices of the company.
  • Increase in price: When a merger happens then prices of the products increases because there is a decrease in the competitors in the market
  • Unemployment increases: When someone takeover someone company the acquired company will shut down and people losses their job.

How Mergers and Acquisitions Occurs

Mergers and acquisitions occur by following steps.

  • Valuation: The first and foremost step of the merger is valuation. You need to validate the target company. You need to check the financial value of the company, how much it will give us in the future and what it is future. Everything needs to be calculated and analyzed closely because you are going to invest in that company. 
  • Homework: You need to do some housework on how the company and employees will behave when the takeover process will happen. You need to search and screen the strategies for what type of things work.  
  • Presentation: When your calculation and analysis work is over then you need to present the business proposal. Whether it will merger and acquisition depend on the proposal. This process shows your interest and the offer to the company in the form of the document.
  • Planning: In this step, whether the target company will accept the offer and what will the company will say so that planning of the actual plan happens. It includes planning for the tax, whether it will be a merger or takeover. And when the execution happens.
  • Marketing: Now the target company will finalize the price of the merger. So that they will get a higher price to compare to market prize.
  • Agreement: The final paperwork will be done. What will be the cost of the merger and all the final signed agreement is signed.
  • Integration: This is the final step of the occurrence of mergers and acquisitions. In this now two companies are joined together. now they became a single company. now all the rules and policies are implemented on the newly acquired company.  

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