The Merger and Acquisition Market

The market for mergers and acquisitions is among corporate finance’s most active and lucrative markets. M&A is not a strategy that every business can implement, but for those who can, it could provide tremendous potential for growth. M&A transactions are usually complicated and require strategic planning and execution to be successful. The M&A starts with an initial assessment of the business. This may include high-level discussions between sellers and buyers to assess how the companies could be strategically positioned to work together in terms of their values, and what potential synergies could exist.

Following the initial review, a preliminary offer can be made to the target company by the acquiring firm. This can be done through an outright acquisition or a tender. A company can acquire all shares of a company as an outright acquisition. This bypasses the targeted company’s board of directors and management. It is usually completed at a higher price than what the shares were worth prior to the acquisition.

A tender offer, on the other hand allows a publicly traded company to directly communicate with shareholders of a publicly held company and offer to purchase their shares at a price that is agreed on by both parties. This is a form of a hostile takeover, and requires the approval of the shareholders of the targeted company before it can be finalized.

The chance to reap revenue and cost synergies from the combination of two companies is a primary reason for companies to consider M&A. For instance, if a car company buys a company that manufactures seat belts it can achieve economies of scale and lower the cost per unit as production increases. Companies also make use of M&A to gain access to technologies that is costly or time-consuming to develop internally.


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