Guide on How to Write University Essays, Courseworks, Assignments and Dissertations

Mergers and Acquisitions

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Two companies together are more valuable than two separate companies – that's the reasoning behind Mergers & Acquisition. The terms merger and acquisition are used as though they were synonymous yet they are not. Acquisition implies a purchase whereby the buyer swallows another company and establishes himself as the new owner. A merger on the other hand happens when two firms unite into a single company. However, actual mergers don't take place as is always the case that the company that buys another (which are supposedly equal in strength) will proclaim that the action is a merger when in reality and technically an acquisition. A purchase deal will be also called a merger when both CEOs mutually agree that merging is in the best interest of their companies. But when the deal in unfriendly it is always regarded as an acquisition. (Business.com, 2007)

 

Mergers

 

Based on the relationship between the two companies that are merging, we can classify mergers into:

 

Horizontal merger- When two companies merge that are in direct competition and share the same product lines and market.

 

Vertical merger- A customer and company or a supplier and company. E.g., a leather supplier and a shoemaker.

 

Conglomeration- Two companies that have no common business areas.

 

Based on how the merger is financed we can classify mergers into:

 

Purchase mergers- This kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument.

 

Consolidation mergers-When both the companies are bought and combined to form a brand new company, the merger is known as consolidation merger. (Business.com)

 

Acquisitions

 

Acquisitions are slightly different from mergers in the sense that there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial and all parties feel satisfied with the deal. Another type of acquisition is a reverse merger , it occurs when a private company that has strong prospects and is eager to raise financing buys a publically-listed company, usually one with no business and limited assets.

 

It must be understood that the main aim and purpose of all mergers and acquisition is to create and make the value of the combined companies greater than the sum of the two parts. (Business.com, 2007)

 

Is the deal worth it?

 

It is not an easy task for the investor to know when a deal is worthwhile. To find mergers that have a chance of success, investors should start by looking for a target, once a target has been identified the acquisition process includes

         Approaching targets

         Managing discussions with the vendors and their advisers

         Negotiating purchase terms

         Raising the most appropriate sources of finance to fund the acquisition

         Project managing the transaction through to completion

 

Will it work or won't it?

 

Mergers can fail for many reasons including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of day-to-day operations. Mergers and acquisition come in all shapes and sizes, and investors need to consider the complex issues involved. (Business.com)

 

 

References:

Business.com, "Mergers and Acquisitions"

Available from:

http://www.business.com/.../ investment_banking_and_brokerage/ mergers_and_acquisitions_manda/reference/

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