Our purpose is not to tire the reader, but merely to outline brief notes on M&A (Mergers and Acquisitions).
A merger is a corporate strategy in which two or more companies join together to form a new one, i.e., two or more companies cease to exist legally and form a new one—with a new identity; whereas in an acquisition, one company buys the controlling interest in another.
What are the reasons for companies to merge?
- Savings on production costs, for example, especially when competitors merge.
- Generation of capital and the possibility for companies to enter new markets or launch products, actions that would not be possible if the companies operated separately.
Other reasons include:
- greater brand coverage;
- higher revenue;
- lower cost;
- lower market risk; and
- better operating conditions.
Seven-step process:
- development of the implementation plan;
- company appraisal (benefits, risks, financial position);
- valuation;
- decision making;
- negotiation and structuring (agreeing on the price and structure of the transaction);
- due diligence (review of the company’s financial, legal, and operational position); and
- conclusion (final adjustments and execution of the agreement).
Based on the concept that “the whole is greater than the sum of its parts,” synergy is the word that denotes the idea of combining business activities, increasing performance, and reducing costs.
Growth, diversification of products and services, and elimination of competition are some of the reasons why the M&A process is evaluated.
