The Merger and Acquisition Market

The merger and acquisitions market is one of corporate finance’s most active and lucrative markets. M&A is not a method that every business should adopt however for those that can, it has immense growth potential. M&A transactions are usually complex and require careful planning and execution in order to be successful. The M&A process starts with an initial assessment of the company. This could include high-level discussions between buyers and sellers to evaluate how the companies could be integrated strategically and how their values align and what synergies might be a possibility.

Once the initial evaluation has been completed, the acquiring company can make a preliminary offer to the company that it is interested in. Depending on the situation it can be made either through an outright acquisition or a tender offer. An outright acquisition involves the acquiring company buying all shares of the company being targeted. This is not involving the board of directors or management of the company being targeted.

A tender offer is, however, allows a publically traded company to directly contact shareholders of a publicly-owned company and offer to purchase their shares for a price that is agreed between the parties. This is a hostile takeover and requires the shareholders of the company to accept it before it can be completed.

The opportunity to realize savings in revenue and costs through the combination of two companies is the primary reason behind companies looking to from this source M&A. For example when a car manufacturer buys a company that manufactures seat belts, it will be able to achieve economies of scale and reduce the cost per unit as production increases. M&A is also used by companies to access technologies that would be expensive or time-consuming to develop on their own.