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Introductions to Mergers and Acquisitions

Mergers and Acquisitions occurs when two companies join in their resources and come together as one. A corporate M&A can have a profound effect on a company's growth prospects and long-term outlook.

Mergers happen when two businesses join forces. Such deals often occur between two organizations of comparable size that understand the benefits the other provides in terms of increased sales, efficiencies, and capabilities. The merger arrangements are frequently amicable and mutually agreed upon, and the two companies become equal partners in the new company.

Acquisitions occur when one company purchases another and incorporates it into its operations. Depending on whether the company being bought believes it is better off as an operating unit of a bigger venture, the acquisition can be friendly or hostile.

What Is A Merger?

Let's start by understanding what a merger is. A merger can be defined as two enterprises of roughly equal size joining forces to continue forward as a single new organization rather than being separately owned and run. A merger when occurs the stock of the two are considered as one. Although a merger is commonly assumed to be an equal split in which each side keeps 50% of the new firm, this is not always the case.

In some mergers, one of the original entities receives a bigger percentage of the new company's ownership. Here often the smaller company or the less important company loses it's identity in the merger and the entire thing is recognized as the major company.

When both CEOs agree that joining forces is in the best interests of both of their companies, the transaction is referred to as a merger. Mergers can occur in a variety of ways depending on the relationship between the two companies involved in the transaction:

Horizontal merger: A merger between two companies that are in direct competition and have similar product lines and markets.

A vertical merger: a merger between a client and a firm when they unite, or when a supplier and a company merge. Here considering a notebook making enterprise merges with a local paper producer:

Congeneric mergers:
These kind of mergers include two companies that service the same consumer base in different methods, such as a television manufacturer and a cable company.

A market-expansion merger occurs when two companies sell the same items in separate markets.

A product-extension merger occurs when two companies sell distinct but related items in the same market.

Conglomeration: A combination of two enterprises with no common business lines.

One of the major merger in recent times is of Zee Entertainment and Sony India.

What Is An Acquisition?

The process by which one corporation acquires another is known as acquisition. The financially powerful firm buys out more than half of another company's stock. Acquisitions are not always completed amicably. A corporation may be required to purchase another company for a variety of reasons, such as expanding into new areas, attracting new consumers, or lowering competition. However, acquisition can occur when one corporation decides to be purchased by another without any enmity.

The transition from acquisition to acquisition is not always seamless because the firm that took over would impose all decisions on employment, structure, resources, and so on, generating an air of discomfort in the acquired company and its employees. Acquisitions are often made to gain control of and build on the target company's capabilities, as well as to capture synergies.

With an acquisition there is a lot of benefit that the acquiring party has with an already known brand, a high reputation, and an existing client base, the company may enter new markets and product lines instantly. An acquisition can help your company swiftly boost its market share. Even though competition can be difficult, growth through acquisition can assist obtain a competitive advantage in the industry.

The approach aids in the achievement of market synergy. Due to the costs of market research, the development of a new product, and the time required to acquire a sizable client base, market entry may be an expensive concept for small enterprises.

A company can opt to acquire other businesses in order to get competences and resources that it does not currently have. Many advantages can result from doing so, such as rapid revenue growth or an increase in the company's long-term financial situation, which makes acquiring funds for expansion initiatives easier. Expansion and diversity can also help a company weather an economic downturn.

One of the most recent acquisition that has occurred is of Infosys acquiring oddity, A German digital marketing agency.

Laws Regulating Mergers And Acquisitions In India:

There are a number of laws governing mergers acquisitions they are as follows:

The Companies Act of 2013, this is the most primary legislation governing M&A. then the other legislations are Foreign Direct Investment Policy, The Securities and Exchange Board of India, Foreign Exchange Management Act, The Insolvency and bankruptcy code, 2016, The competition act, 2002, The Income Tax Act.

What Is The Difference Between Mergers And Acquisitions?

Now that we know what mergers and acquisitions are, Let's understand the difference between the two although they may seem alike but the have vast differences. Mergers are coming of two entities together having similar interest and having one stock, acquisition is buying of one company by the other and the later having complete control over it.

Companies that merge commonly regard each other as equals, and so encourage each other to build a synergy. In the case of an acquisition, the acquiring firm imposes its will on the acquired company, depriving the acquired company of its freedom and decision-making power. The power differential between acquired and acquiring firms is enormous.

Mergers are strategic decisions made after extensive consideration and planning by the companies that will be merged. As a result, the likelihood of a chaotic atmosphere following merger is reduced. The acquisition is likewise a strategic decision, but in most circumstances, the decision is not mutual. As a result, there is a lot of antagonism and confusion after an acquisition.

In mergers a lot of paperwork goes down as a result of formation of a new company whereas in acquisition there is not a lot of paperwork involved since there is no such thing happening and one company is taking over.

When it comes to the power play both the companies involved in merger share almost equal power in the functioning of the company but however in acquisition the acquiring company has an upper hand in dictating the terms.

Conclusion:
The growing and changing world is in constant need to resources and new ideas to move ahead and this growth cannot always be achieved on its own there is a lot that goes in into building and running a company. Mergers and Acquisitions are the new way forward. Mergers and acquisitions are utilized as instruments of significant expansion and are increasingly being acknowledged as key tools of business strategy by Indian businesses.

They are frequently employed in a variety of areas such as information technology, telecommunications, and business process outsourcing, as well as traditional company, to increase strength, grow client base, reduce competition, or enter a new market or product segment. Mergers and acquisitions can be used to gain market access through an established brand, gain market share, decrease competition, minimize tax liabilities, acquire expertise, or set off one business's cumulative losses against the profits of another entity. These prove to beneficial not only to the companies but to the market and the economic at large.

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