MERGERS AND ACQUISTIONS

• Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets.

• In a merger, the boards of directors for two companies approve the combination and seek shareholders' approval. After the merger, the acquired company ceases to exist and becomes part of the acquiring company.

• In an acquisition, the acquiring company obtains the majority stake in the acquired firms, which does not change its name or legal structure.

REASONS FOR MERGERS & ACQUISTIONS

• Synergy: The most used word in M&A is synergy, which is the idea that by combining business activities, performance will increase and costs will decrease

• Diversification / Sharpening Business Focus: A company that merges to diversify may acquire another company in a seemingly unrelated industry in order to reduce the impact of a particular industry's performance on its profitability.

• Growth: Mergers can give the acquiring company an opportunity to grow market share.

• Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the distributors, a business can eliminate a level of costs.

• Eliminate Competition: Many M&A deals allow the acquirer to eliminate future competition and gain a larger market share in its product's market

TYPES OF MERGERS:

CONGLOMERATE

MERGERS

VERTICAL MERGERS

HORIZONTAL MERGERS

• Horizontal Merger: Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. 

Eg. A merger between Coca-Cola and the Pepsi beverage division

• Conglomerate: A merger between firms that are involved in totally unrelated business activities.

Eg.  A merger between the Walt Disney Company and the American Broadcasting Company.

• Vertical Merger: A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain

Eg. An automobile company joining with a parts supplier would be an example of a vertical merger

TYPES OF ACQUISITIONS/TA

KEOVERS

• Friendly takeovers :A "friendly takeover" is an acquisition which is approved by the management. Before a bidder makes an offer for another company, it usually first informs the company's board of directors. In an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders.

• Hostile takeovers : A "hostile takeover" allows a bidder to take over a target company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, and if the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer. 

• Reverse takeovers: Reverse takeover is a type of merger activity in which the acquiring company tries to get itself publicly traded without going for an initial public offering.

• Backflip takeovers: A "backflip takeover" is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. This type of takeover can occur when a larger but less well-known company purchases a struggling company with a very well-known brand.