In the business world, the secret of success lies in grabbing new opportunities. There are several opportunities to boost the economic growth of business and Mergers and Acquisitions is one among them. Mergers and Acquisitions refer to the consolidation of different companies. Though both terms are often used interchangeably, there is a slight yet evident difference between them.
While the merger is the process of combining two companies to become one, acquisition is the process in which one company is taken over by another.
The goals behind M&A are to expand operations, increasing market share, gaining competitive advantages and to double the profits. It is an important way of increasing wealth in the corporate world and organizations are always on the lookout for the opportunities of maximizing wealth through mergers and acquisitions.
Reasons for Mergers and Acquisitions
- Value creation: Two companies merge to create synergies and improve the value of the new entity. Synergy is mainly about the advantages that the combined entity gets when compared to the separate units. It may increase the company’s revenue or help in reducing the company’s cost structure.
- Diversification: Organizations always merge with other companies for diversification which means expanding their business operations by entering new markets and offering new products or services.
- Rapid growth: There will be a rapid growth as a result of mergers and acquisition if it is carried out after in-depth research and evaluation. The power will be twice if a company acquires the assets of another company and gets introduced to a vast target audience.
- Tax advantages: The M&A process provides many tax advantages to the companies and the important example is a tax loss carry-forward. If one of the firms involved has previously sustained net losses, these losses can be offset against the profits of the firm it has merged with.
- Survival: Many companies that are facing a crisis due to various factors like the global economic recession can survive through mergers and acquisitions. Another company can merge with them or acquire them to invest more and expand the business.
Types of mergers
A merger occurs when two companies combine and become one legal entity. Following are the different types of mergers:
- Horizontal merger: A merger that occurs between two companies which operate in the same industry and are often competitors.
- Vertical merger: A merger that combines two companies that are not competitors, but exist in the same supply chain.
- Market-extension merger: It happens when two companies that deal with the same products, but different markets merge.
- Product-extension merger: This is the consolidation of two companies that sell related products in the same market. It allows them to merge their products and get exposure to a wider customer base.
- Conglomerate merger: It is the merger between two companies that have unrelated products or services.
Valuation is an important factor in the M&A deals as it helps to determine the worth of the target company. It is a meticulous process that enables the company to understand the value of the transaction.
A mergers and acquisitions training course will give you an overview of the major aspects of the mergers and acquisitions (M&A) industry. In this course, you will learn the skills involved in executing transactions, from a deal’s inception to post-merger integration. It is also beneficial for understanding the main reasons behind the failure of M&A deals and the ways to implement it successfully.