Mergers and Acquisitions
Mergers and Acquisitions (M&A): is a general term used to describe the consolidation of companies or assets through various types of financial transactions; including mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions.
While some may think mergers and acquisitions nearly mean the same, both terminologies hold slightly different meanings.
An acquisition happens when one firm purchases most or all of another firm’s shares, in order to gain control of that firm. In other words, purchasing more than 50% of a target firm’s stock and other assets allows the acquirer to make decisions about the newly acquired assets without the approval of the other shareholders of the firm. An acquisition could be horizontal, vertical, congenic or conglomerate.
Mergers and Acquisitions type
the biggest factor in any business is competition. If the entity has to grow in the market, it will have to constantly try to maximize its shares. An entity, which is thriving at the same stage of production, capacity and serving the same class of customer, will be considered as the competitor, so in order to cover the market, either entity will have to serve better quality of products or try to eliminate the competition, which can be easily eliminated by acquiring the competitor. This is termed a horizontal acquisition.
A vertical acquisition can be done by either backward integration or forward integration. Where a wholesaler is having a monopoly in the trading, this will acquire any manufacturing unit producing the same commodity to be considered as backward integration, as it will help in obtaining the inventories at highly reasonable rates. Whilst, if the same wholesaler acquires retail stores, it will be considered as forwarding integration. This will give direct customer facing, which will help in earning the retail level profit. The above process is termed a vertical acquisition.
Due to the lacking in time we’re having recently, consumers prefer one stop-shop to optimize time for shopping by acquiring all the necessities from the same roof. This is why shopping malls have thrived in the market.
This helps individuals to satisfy their various needs from the same vendor, which will not only save time but will also put pressure on them to ensure better quality of the products. Which enables the vendor to offer various products together, which will help in, satisfy the single need of the customer, and helps the acquirer to enjoy a different area of the same industry that will be served to the same customer.
Conglomerate Acquisition occurs in between the entity that is completely indifferent product line, different geographies, and different customer base and has a completely different business model. This means, such firms will be having nothing common in them and they plan to undertake such acquisition to diversify their risk and try to cover the new market. Such types of acquisition will help to provide the existing products to the customers of the newly acquired company and vice versa.
However, a merger is an agreement that unites two existing companies into one brand new company. Mergers are most commonly done to gain market share, reduce costs of operations, expand to new territories, unite common products, grow revenues, and increase profits—all of which should benefit the firms’ original shareholders. Mergers have various types, conglomerate merger, congeneric (product extension merger), market extension, horizontal, and vertical.
Read more: The Financial Regulatory Authority (FRA)