The Merger and Acquisition Market

Written by Sky, June 6, 2024

The merger and acquisitions market is among corporate finance’s most dynamic and lucrative markets. M&A is not a strategy that every company can adopt but for those that can, it could provide immense growth potential. M&A transactions can be complicated and require careful planning and execution in order to be successful. The M&A begins by evaluating the business. This can include high level discussions between buyers and sellers to determine how the two companies could be strategically positioned to work together in terms of their values, and what potential synergies might be a possibility.

After the initial assessment is completed, the company that is buying could make a preliminary offer to the company it wants to acquire. Depending on the situation it can be made via an outright purchase or tender offer. A direct acquisition involves the acquiring company purchasing all shares of the company targeted. This is done without the board directors or the management of the company being targeted.

A tender offer allows companies that are publicly traded to reach out to shareholders of a privately held company and offer to buy their shares at a cost that is agreed upon by both parties. This is a kind of a hostile takeover and requires the approval of the shareholders of the targeted company before it can be finalized.

The primary reason for a company’s pursuit of M&A is the possibility to realize revenue and cost synergies by combining the two companies. If a car manufacturer buys a seat belt company it will gain economies of scale that will reduce the cost per item as production increases. Companies also use M&A to gain access to technology that would be expensive or time consuming to develop internally.

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