The Merger and Acquisition Market
The market for mergers and acquisitions is among corporate finance’s most active and lucrative markets. Although it’s not a plan that every company can pursue, for those that can succeed, M&A can create tremendous growth potential. M&A transactions can be complex and require careful planning and execution in order to be successful. The M&A starts with an initial evaluation of the business. This can include high-level discussions between buyers and vendors to see how the two companies strategically fit together.
After the initial evaluation the preliminary offer can be made to the targeted company by the acquirer. This could be done through an outright acquisition or a tender. An outright acquisition is the acquiring company purchasing all shares of the company targeted. This is not involving the board of directors or the management of the company being targeted.
A tender offer, on the other hand, allows a publically traded company to directly communicate with shareholders of a publicly held company and offer to purchase their shares for a price agreed on by both parties. This is a hostile takeover and requires the shareholders of the company to be in agreement with the transaction before it is completed.
One of the main reasons for a company’s pursuit of M&A is the possibility to gain revenue and cost synergies as a result of the merger of the two companies. If a car manufacturer purchases a seat belt company, it can benefit from economies of scale that will lower the cost per piece as production increases. Companies also use M&A to gain access to technology that is costly or time consuming to develop internally.
