What are Mergers and Acquisitions?
M&A refers to the consolidation of companies or assets through different types of financial transactions, including mergers, acquisitions, consolidation agreements, tendering offers, asset acquisitions and management acquisitions.
M&A enable firms to develop or minimize the scale and change the nature of their business, or competitive position, as part of strategic planning. In other words, it refers to the transactions that are combined in some way between two companies.
Types of Mergers and Acquisitions
Depending on the economic point of view, or business combinations, mergers and acquisitions may be classified into three types, namely horizontal, vertical and conglomerate.
Two companies operating in similar industries, which may or may not be direct competitors, make a horizontal merger.
A vertical merger occurs along the supply chain between a company and its supplier or a customer. The enterprise aims to increase or decrease its supply chain and thus strengthen its position within the sector.
Such transactions are usually made for different reasons and are carried out between two firms in unrelated industries, with no common business areas.
Whereas, depending on the forms of integration, mergers and acquisitions are categorized as:
1. Statutory merger
Statutory mergers occur when the purchaser exceeds the target and acquires the assets and liabilities of the target. Following the deal, the target company stops being a separate entity.
2. Subsidiary merger
In a subsidiary merger, the goal is a subsidiary of the purchaser but continues to operate.
With regard to a consolidation, after the deal, both businesses cease to exist and a new firm is formed. The terms for tax are the same as those of a purchaser company.
Difference between mergers v/s acquisitions
The terms mergers and acquisitions are often used interchangeable. Yet, the legal meanings of the terms are not closely similar.
In a merger, a new single firm is formed by two companies of similar size. Whereas an acquisition occurs when a larger company acquires a smaller business and captures it.
In a merger, the boards of directors for two firms approve the fusion and seek approval of owners of the company. In an acquisition, the company acquiring takes a large shareholding in the acquired company that doesn’t require to change its name, framework, or culture.
The most common difference in the size of the companies is between a merger and an acquisition. If one company is far larger than the other, it will probably integrate the smaller company with the larger company. The smaller company can still keep its legal name and its structure, but the parent company is now owned. In other cases, the smaller enterprise completely ceases to exist.
If companies of a similar size form a new entity, which can be formed when a merger takes place.
Steps in mergers and acquisitions
The primary stages that are followed in the mergers and acquisitions process are:
- Review of the pre-acquisition or merger terms
- Research on new targets
- Assessment of the target
- Negotiation of the selected target
- Review of the post-merger or acquisition of terms
Mergers and acquisitions examples:
Among the most recent mergers and acquisition examples is the acquisition of Slack by Salesforce. Slack will be able to speed up and broaden its purpose to simplify, make work life more delightful and efficient as part of Salesforce. Slack continues its activities under the Slack brand, with its mission, clients and community continually focusing.
The other popular mergers and acquisitions examples in the list include:
- Vodafone and Mannesmann
- Disney, Pixar and Marvel
- Google and Android
- Pfizer and Warner Lambert
- WhatsApp and Facebook