Mergers & Acquisitions
Mergers and acquisitions (M&A) refer to transactions between two companies combining in some form. Although mergers and acquisitions (M&A) are used interchangeably, they come with different legal meanings. In a merger, two companies of similar size combine to form a new single entity.On the other hand, an acquisition is when a larger company acquires a smaller company, thereby absorbing the business of the smaller company. M&A deals can be friendly or hostile, depending on the approval of the target company’s board.
Mergers and Acquisitions (M&A) Transactions – Types
Mergers and acquisitions is a generally known term, that effectively describes the consolidation of businesses and/or assets. This is realized via various types of financial transactions, such as acquisitions, mergers, tender offers, consolidations, the purchase of assets, and also management acquisitions.
Horizontal
A horizontal merger happens between two companies that operate in similar industries that may or may not be direct competitors.
Vertical
A vertical merger takes place between a company and its supplier or a customer along its supply chain. The company aims to move up or down.
Conglomerate
This type of transaction is usually done for diversification reasons and is between companies in unrelated industries.
Reasons for Mergers and Acquisitions (M&A) Activity
Mergers and acquisitions (M&A) can take place for various reasons, such as:
- Unlocking synergies :The common rationale for mergers and acquisitions (M&A) is to create synergies in which the combined company is worth more than the two companies individually. Synergies can be due to cost reduction or higher revenues.
- Higher growth : Inorganic growth through mergers and acquisitions (M&A) is usually a faster way for a company to achieve higher revenues as compared to growing organically
- Tax benefits :Tax benefits are looked into where one company realizes significant taxable income while another incurs tax loss carryforwards. Acquiring the company with the tax losses enables the acquirer to use the tax losses to lower its tax liability.
