The Merger and Acquisition Market
The market for mergers and acquisitions is among the corporate finance’s most active and lucrative markets. M&A is not a method that every company can adopt but for those that can, it can provide huge potential for growth. M&A transactions can be very complex and require careful planning and execution in order to be successful. The M&A process begins with a preliminary assessment of the company. This may include high-level discussions between sellers and buyers to assess how the companies could be strategically positioned to work together and what their values are aligned and what synergies may exist.
Once the initial review is completed, the acquiring firm may present a preliminarily offered offer to the company it wants to acquire. This can be done through an outright purchase or a tender. A company can buy all shares of a company as an outright acquisition. This is done without the board of directors or the management of the company that is being targeted.
A tender offer permits an publicly traded company to contact the shareholders of a privately held company and offer to buy their shares at a cost that is agreed on by both parties. This is a hostile acquisition that requires the shareholders of the company to be in agreement with the offer before it can be completed.
The main reason for a business to pursue M&A is the opportunity to gain revenue and synergies through the combination of the two companies. If a car manufacturer purchases the seat belt business it will benefit from economies of scale that will lower the cost per piece as production increases. M&A is also utilized by companies to gain access to technologies that would be expensive or time-consuming to develop in-house.
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