Mergers and A

8/13/2019 Mergers and A

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ACQUISITION

Acquisition refers to the process of acquiring a company at a price called the acquisition price or

acquisition premium. The price is paid in terms of cash or acquiring company's shares or both.

There are two types of business acquisitions, friendly acquisition and hostile acquisition. In a

friendly acquisition, a company invites other companies to acquire its business. In a hostile

acquisition, the company does not want to sell its business. However, the other company

determined to acquire the business takes the aggressive route of buying the equity shares of the

target company from its eisting shareholders.

As the motive is to takeover someone else's business, the acquiring company offers to buy the

shares at a very high premium, that is, the gaining difference between the offer price and the

market price of the share. This entices the shareholders and they sell their stake to earn quick

money. This way the acquiring company gets the ma!ority stake and takes over the ownership

control of the target company.

Acquiring an eisting business enables a company to speed up its epansion process because

they do not have to start from the very scratch. The target company is already established and has

all the processes in place. The acquiring company simply has to focus on merging the business

with its own and move ahead with its growth strategies. However, in reality, it is not as simple as

it seems. "ost of the acquisitions fail miserably due to poor implementation attitude and

strategies.


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Difference Between Merger and Acquisition

"erger and acquisition is often known to be a single terminology defined as a process of

combining two or more companies together. The fact remains that the so#called singleterminologies are different terms used under different situations. Though there is a thin line

difference between the two but the impact of the kind of completely different in both the cases.

"erger is considered to be a process when two or more companies come together to epand their

business operations. In such a case the deal gets finali$ed on friendly terms and both the

companies share equal profits in the newly created entity.

%hen one company takes over the other and rules all its business operations, it is known as

acquisitions. In this process of restructuring, one company overpowers the other company andthe decision is mainly taken during downturns in economy or during declining profit margins.

Among the two, the one that is financially stronger and bigger in all ways establishes it power.

The combined operations then run under the name of the powerful entity who also takes over the

eisting stocks of the other company.

Another difference is, in an acquisition usually two companies of different si$es come together to

combat the challenges of downturn and in a merger two companies of same si$e combine to

increase their strength and financial gains along with breaking the trade barriers. A deal in case

of an acquisition is often done in an unfriendly manner, it is more or less a forceful or a helplessassociation where the powerful company either swallows the operation or a company in loss is

forced to sell its entity. In case of a merger there is a friendly association where both the partners

hold the same percentage of ownership and equal profit share.


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Types of Mergers and Acquisitions

There are many types of mergers and acquisitions that redefine the business world with new

strategic alliances and improved corporate philosophies. &rom the business structure perspective,

some of the most common and significant types of mergers and acquisitions are listed below

Horionta! Merger

This kind of merger eists between two companies who compete in the same industry segment.

The two companies combine their operations and gains strength in terms of improved

performance, increased capital, and enhanced profits. This kind substantially reduces the number

of competitors in the segment and gives a higher edge over competition.

"ertica! Merger

(ertical merger is a kind in which two or more companies in the same industry but in differentfields combine together in business. In this form, the companies in merger decide to combine all

the operations and productions under one shelter. It is like encompassing all the requirements

and products of a single industry segment.

Co#$eneric Merger

)o#generic merger is a kind in which two or more companies in association are some way or the

other related to the production processes, business markets, or basic required technologies. It

includes the etension of the product line or acquiring components that are all the way required

in the daily operations. This kind offers great opportunities to businesses as it opens a huegateway to diversify around a common set of resources and strategic requirements.

Cong!o%erate Merger

)onglomerate merger is a kind of venture in which two or more companies belonging to

different industrial sectors combine their operations. All the merged companies are no way

related to their kind of business and product line rather their operations overlap that of each

other. This is !ust a unification of businesses from different verticals under one flagship

enterprise or firm.


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&rocess of Merger and Acquisition

"erger and acquisition process is the most challenging and most critical one when it comes to

corporate restructuring. *ne wrong decision or one wrong move can actually reverse the effects

in an unimaginable manner. It should certainly be followed in a way that a company can gain

maimum benefits with the deal.

'o!!owing are so%e of t(e i%portant steps in t(e M)A process*

Business "a!uation

+usiness valuation or assessment is the first process of merger and acquisition. This step

includes eamination and evaluation of both the present and future market value of the target

company. A thorough research is done on the history of the company with regards to capital

gains, organi$ational structure, market share, distribution channel, corporate culture, specific

business strengths, and credibility in the market. There are many other aspects that should be

considered to ensure if a proposed company is right or not for a successful merger.

&roposa! &(ase

roposal phase is a phase in which the company sends a proposal for a merger or an acquisition

with complete details of the deal including the strategies, amount, and the commitments. "ost of

the time, this proposal is send through a non#binding offer document.

&!anning +,it

%hen any company decides to sell its operations, it has to undergo the stage of eit planning.

The company has to take firm decision as to when and how to make the eit in an organi$ed and

profitable manner. In the process the management has to evaluate all financial and other business

issues like taking a decision of full sale or partial sale along with evaluating on various options

of reinvestments.

Structuring Business Dea!

After finali$ing the merger and the eit plans, the new entity or the take over company has to

take initiatives for marketing and create innovative strategies to enhance business and its

credibility. The entire phase emphasi$e on structuring of the business deal.


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Stage of Integration

This stage includes both the company coming together with their own parameters. It includes the

entire process of preparing the document, signing the agreement, and negotiating the deal. It also

defines the parameters of the future relationship between the two.

Operating t(e "enture

After signing the agreement and entering into the venture, it is equally important to operate the

venture. This operation is attributed to meet the said and pre#defined epectations of all the

companies involved in the process. The "-A transaction after the deal include all the essential

measures and activities that work to fulfill the requirements and desires of the companies

involved.


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Corporate %ergers and acquisitions

)orporate merger and acquisition is defined as the process of buying, selling, and integrating

different corporations with the desire of epansion and accelerated growth opportunities. This

kind of association in any form plays an integral role when it comes to business and economy as

it results in significant restructuring of a business.

The key ob!ective of corporate mergers and acquisitions is to increase market competition. This

can be done in various ways using different methods of merger like hori$ontal merger,

conglomeration merger, market etension merger, and product etension merger. All the types

work towards a common goal but behold different characteristics suited to get the best outcome

in terms of growth, epansion, and financial performance.

In many significant ways, this kind of restructuring a business proves to be beneficial to thecorporate world. It greatly helps to share all resources, skills, talents, and knowledge that

eventually increase the wisdom bar within the company. This can further help to combat the

competitive challenges eisting in the market.

&urther to that, elimination of duplicate departments, possibility of cross selling, reduction of ta

liability, and echange of resources are other big time benefits of corporate merger and

acquisition. This not only helps to cut the etra cost involved in the operation and gain financial

gains but also help to epand across boundaries and enhance credibility. This in the long run help

increase revenue and market share, fulfillment of the only desire that drives the growth of "-A

Mergers and A

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