Mergers and acquisitions (M&A) are the classic, fastest and most reliable way to restructure/transform your own business, as a result of which larger companies appear on the market.
Mergers and acquisitions are one of the most important aspects of the world of corporate finance, the main value of which is that, when combined, companies have greater financial value and demand in the market than when they operate separately.
Mergers and acquisitions occur through the purchase / sale of a business:
- by acquiring assets;
- by purchasing ordinary shares;
- by exchanging shares for assets;
- by exchanging shares for shares.
How does the merger of the COMPANY happen?
A merger is a combination of two companies to form one
Mergers can be of different types, depending on the goals of the companies:
- A merger in which two companies merge and a new independent company enters the market, and the two merged companies cease to exist legally;
- A merger in which two companies retain the status of legal entities, but transfer the rights of control over their companies to a new company that is created.
Affiliation is a combination of companies, in which one company retains its legal status, and those companies that join the main company lose their legal personality, their rights and obligations are transferred to the main company, of which they become a part. Acquisition can be considered, under certain conditions, as protection against takeovers, since in the event of a takeover, the acquired company loses all rights and obligations by establishing full control of the company that conducts the takeover.
Acquisition – the establishment of full control of one company over the second (absorbed). In this case, the acquired company loses its legal status, rights and obligations, as a result of which it becomes part of the main company.
Types of M&A deals
Mergers and acquisitions take place in different areas of activity. From an economic point of view, mergers can be divided into three types, depending on whether companies are merging in the same industry or not:
- Horizontal mergers – two companies are in the same industry;
- Vertical mergers – two companies are at different stages of production (one produces a service for the second);
- Conglomerate mergers – companies are in unrelated industries.
Generic mergers – companies produce related products (one company produces a certain product, and the second – spare parts for the operation of this product).
As a result of acquisitions and mergers, the company’s growth in the market accelerates, demand increases, resource savings due to scale increase, tax planning is optimized, assets are diversified, resulting in reduced financial and investment risks.
Stages of a takeover and merger transaction
Stage No. 1 – a preliminary analysis of the company that is going to enter into a deal: assessing the need for a deal, identifying risks and prospects. This is the first and most important step in mergers and acquisitions as the company evaluates its financial condition to see if it can operate. Understanding the current situation, the company moves on to the next step – searching for a company for a deal.
Stage number 2 – search for a company for the transaction: compiling a list of potential companies after the initial monitoring of the market and their verification. Selection of the most suitable option among companies.
Stage No. 3 – negotiating with the company selected at the previous stage. Negotiations are held to reach a consensus on an acquisition or merger transaction. At this stage, as a rule, a non-disclosure agreement (NDA, non-disclosure agreement) is signed, and the companies discuss the goals, prospects and cost. At this stage, companies either come to a common goal and sign an agreement of intent to conclude an M&A deal, or interrupt and complete negotiations.
Stage 4 – preparation of the company for M&A, which consists of: conducting a full in-depth Due Diligence (legal, economic, financial, tax audit of the company, commercial, antimonopoly expertise, etc.), structuring the transaction and concluding an agreement.