Mergers and Acquisitions (M&A)
Mergers and Acquisitions (M&A)

See Also:
Make-or-Buy Business Decision
Company Life Cycle
Company Valuation
Return on Equity
Financial Ratios
Joint Venture (JV)
Accretion

Mergers and Acquisitions Basics

Mergers and acquisitions (M&A) refer to the buying, selling, and combining of companies. In an M&A deal, two companies become one.
M&A deals are typically facilitated by investment bankers. Before going through with a merger or an acquisition, both sides of the deal will conduct due diligence – a thorough analysis of all aspects and consequences relating to the proposed deal – to make sure it will be beneficial to their side of the deal. Mergers and acquisitions are a normal part of business happenings in a healthy economy.

Merger or Acquisition?

Although many combine these two terms, there is a difference between mergers and acquisitions. Mergers refer to the combination of two companies. Mergers are often mutually acceptable by both companies and the new entity often combines the names of the two original entities. In a merger, the two companies that merge combine and become a new company. Furthermore, this involves surrendering the stocks of the old companies and issuing stock for the new company.
Acquisitions refer to one company purchasing another company. This typically occurs when one of the companies is significantly larger than the other company – the acquirer is larger than the target. In an acquisition, the target company ceases to exist as a separate entity and becomes a part of the acquiring company. Acquisitions are not always mutually acceptable to both parties. For example, a company can buy another company even if the target company does not want to be bought. Sometimes mutually acceptable acquisitions are called mergers to make the deal sound friendlier.

Friendly Merger or Hostile Takeover?

Mergers are always friendly, or mutually acceptable to both companies. Acquisitions can be either hostile or friendly. A hostile acquisition, or hostile takeover bid, is one in which the acquirer buys a target that does not wish to be bought. A friendly acquisition is one in which the target company does want to bought.

M&A Synergy

The purpose of an M&A deal is to achieve synergy. Basically, synergy is the concept that the whole is greater than the sum of its parts, or one plus one equals three. The idea is that the two companies will be more valuable together than they were as separate entities.
You can achieve synergies in various ways. The combined companies may achieve cost efficiencies, greater market share, a stronger competitive position, and enhanced revenues. You may also achieve these benefits through economies of scale, staff reductions, or sharing of technology. While striving for synergies is a goal in M&A deals, the combined companies do not always achieve the sought after synergistic benefits.
If you don’t leave any value on the table, then download the Top 10 Destroyers of Value whitepaper.
Mergers and Acquisitions

[box]Strategic CFO Lab Member Extra

Access your Exit Strategy Execution Plan in SCFO Lab. This tool enables you to maximize potential value before you exit.

Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Mergers and Acquisitions

ARTICLES YOU MIGHT LIKE

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

What the Current Hiring Process Costs

It’s hard for companies to realize how much they are actually spending when it comes to hiring a new employee. Once they decide it’s time to pursue a new worker, a lot of resources are used to find the perfect candidate for the job. Finding the perfect candidate within a vast number of people might

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

February 27 - March 2, 2023

Skip to content