Merger and Acquisition are the corporate strategies that deal with the buying,
selling and combining of different companies. And also the combination of the
companies depends upon the various factors such as current status of companies,
the present situation of the market and the threat and opportunities after
combining the companies together. In the intense competition, companies tackle
many difficulties and desire to become profitable, active and efficient ones.
The reason behind the merger and acquisition is to avoid the competition,
growth, the non availability of capital and to increase the supply chain of
power. Sometimes it is difficult for the
companies to survive in the long run so they decide to merge or acquire in order
to survive in the long run.
Mergers and Acquisition refers to the combination of assets of the two companies
with the motive of profits, to increase the competitive advantage and also to
increase the market share. It refers broadly to the process of combining one
company with another which describes the consolidation of companies or assets
through various types of financial transactions. A Merger is the combination of
two firms, which forms a new legal entity with the banner of one corporate name.
The board of directors of the two companies approve the combination and seek the
shareholders. Acquisition is the acquired firm which does not change its legal
name or the structure but it is owned by the parent company and also they have
the same stock symbol. It can also be done by exchanging one company's stock
with another or by using cash to purchase the target of the company's shares.
Mergers and Acquisition are the ways for companies to expand their reach into
new segments or gain market shares. The shares of the new company are
distributed to existing shareholders of both the parties.
Essentials stages of Merger and Acquisition
- Merger and Acquisition strategy process:
The first step is to find out the
various ways to accelerate growth plans of the business through Mergers and
acquisition. The factors depend upon the geographical location, the technology
required for the business, risk factors and the other skills. Another step is to
find out the financial constraints,which can be arranged through loans, cash,
public and private equities. Also, the profile of the company plays an important
role as it helps in developing the business. Rating or ranking
the acquisition candidates on the basis of their businesses will have the
relative impact on the acquisition.
- Target identification strategies:
Companies need to ensure that the target
identification is based on the research work that is the company who has done
well research has the opportunity to win the competition which requires the
company to identify their potential segments through conducting an evaluation of
the company for future sources of profit, the customer and theirs choice,
dispersive technologies etc. The business grows only if the existing business
has problems like poor management, assets of the business are not utilizing
properly, the manager is leaving or retiring from the company.
- Information exchange:
After the above two stages getting successful, both the
parties agreed to go for further transactions, the documentation process starts
which includes submission of letter of intent and also ensures that the
proceedings of deal and discussion of the company will not go out. After that
they share their information like the financial statements, history of the
company so that they can inform the position of their company.
- Valuation and Synergies:
After both the shareholders sharing their
information, assessment of the target and the deal has been done, the seller
tries to find out what would be the price of the assets that would result in
gaining the profit from the deal. Also they try to decide the reasonable offer
to target the purchaser. Also they calculate the amount of benefit in terms of
reduction in cost, increase in market power etc.
- Offer and Negotiation:
After the assessment the offer is given to the
shareholders which can be in cash or stock. The seller analyzes whether the
offer is reasonable or not and also tries to negotiate for the better price.
This step is very complex and also requires a lot of time and also creates the
competition among the buyers to sell the assets with better price. When the
target is being attractive there is competition among buyer, buyers which offer
- Due Diligence:
After the acceptance of the offer this process begins which
includes a review of the target entity including products, financial books and
human resources. The main focus is to ensure that the correct information has
been provided on which the offer was made. Otherwise the revision is done to
justify the actual information.
- Purchase Agreement:
In this stage the agreement is drafted which outlines the
cash and stock to be given to the targeted shareholders. Also it mentions the
time when the payment would be made to the shareholders.
- Deal closure and integration:
After completing all the above stages both the
parties close the deal by signing the document. The management teams of both the
sides work together for merging the entity.
Benefits of the Merger and Acquisition
When the merger and acquisition executes strategically and intelligently the
position of the company in the market improves its financial credit. It also
enhances the business relationships, expands the offering of products and
services and increases the capacity at a lower cost. It believes that merger and
acquisition brings a huge benefit for both the parties if they have the
positive attitude and are ready for the negotiation and achievement to the same
Mergers and Acquisitions activities are the key role in the company's growth.
The benefits of this improve and support the long term development scheme.
Though it depends upon the board of directors, the flexibility of negotiation
period and enthusiasm of parties to reach the target to conduct the mergers and
It is confirmed to be one of the most useful methods
to overcome the difficulties and improve the development of the company. It also
supports the growth of the global economy which gives the competition advantages
of the company and brings them success and prosperity and it is the best way to
tackle difficulties in the 21st century.
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