Types of M&A
A merger is when two companies combine to form a new company. In a merger, the two companies’ stockholders receive shares in the new company.
An acquisition is when one company buys another company and absorbs it into the acquiring company. In an acquisition, the shareholders of the target company receive cash or shares in the acquiring company.
A consolidation is when two or more companies combine to form a new company, but unlike in a merger, the surviving entity is not one of the original companies. In a consolidation, the shareholders of each of the original companies receive shares in the new company.
A tender offer is when an acquiring company makes a public offer to buy shares of the target company from its shareholders at a specified price. Tender offers are usually made in cash, but they can also be made in stock.
An asset acquisition is when one company buys another company’s assets, but not the company itself. In an asset acquisition, the buyer usually assumes some of the liabilities of the seller, but not all of them.
A management acquisition is when a company is bought by its management team. In a management acquisition, the management team of the target company buys the company from its shareholders.
Reasons for M&A
There are many reasons why companies engage in Mergers and acquisitions activity. Some of the most common reasons are:
Synergies are the benefits that a company can realize by combining with another company. Synergies can come from many sources, including economies of scale, complementary products or services, and complementary geographic footprints.
M&A can be a way for companies to grow quickly. By acquiring another company, a company can enter new markets, gain new customers, and add new products or services to its portfolio.
Mergers and acquisitions can also be a way for companies to save money. For example, two companies that produce the same product may be able to eliminate duplicate research and development costs by merging. Or, two companies that operate in the same industry may be able to achieve cost savings by consolidating their back-office functions.
M&A can also be a way for companies to reduce competition. For example, if two companies that compete in the same market were to merge, the combined company would have less competition.
M&A can also be a way for companies to diversify their businesses. For example, a company that makes only one type of product may want to acquire a company that makes a different type of product. By diversifying its business, the company can reduce its risks and become less dependent on any one product or market.
Mergers and acquisitions can also be a way for companies to acquire new talent. For example, a company may want to acquire another company in order to get access to its employees’ expertise or knowledge.
M&A can also offer tax benefits to companies. For example, if a company acquires another company in a different country, it may be able to take advantage of that country’s lower tax rates.
These are just some of the reasons why companies engage in M&A activity. There are many other reasons as well. Ultimately, each company has to decide for itself whether or not an M&A transaction makes sense.