In the business domain, M&A stands for ‘mergers and acquisitions’. In case of a merger, two or more companies combine. On the other hand, acquisition happens when one company purchases another and incorporates it into the larger business. Earlier, Anand Jayapalan had mentioned that one of the key differences between a merger and an acquisition relates to the size of the companies involved. In case one company is much bigger than the other, it is likely to get integrated into the larger organization through an acquisition. In certain cases, the smaller company may retain its legal name and structure, but shall be owned by the parent company. There are also instances where the smaller company completely ceases to exist. However, in case two companies are of similar size, they are likely to come together to form a new entity in a merger.
In the situation of an ‘unfriendly’ deal or hostile takeover, the target company does not wish to be purchased, but has to out of necessity. These situations are always considered an acquisition. The manner in which transactions are communicated to the Board of Directors, shareholders and employees also may play a role in determining whether a deal is considered to be an acquisition or merger.
Large companies with a dedicated corporate development team often use the term “targeted acquisition”. These corporate development teams strive to identify opportunities to acquire smaller businesses for the purpose of supporting their own growth strategies. Depending on the individual transactions, these deals may or may not be considered unfriendly.
Mergers and acquisitions can be of multiple types, ranging from vertical and horizontal to market-extension, product-extension, and conglomerate. Each of these processes has its distinctive benefits and goals. Broadly speaking, M&A can help in:
- Diversifying offerings
- Decreasing competition
- Boosting efficiencies
- Increasing market share
- Expanding product lines
- Building economies of scale
M&A is a proven means of growth. It allows the newly merged entity to expand its market share, extend its geographical reach, surpass or acquire competitors, as well as gain access to additional talent, technologies, and assets.
Preparing for and executing mergers and acquisitions (M&A) can be a rigorous process, often spanning several months. During this time, extensive due diligence is carried out to evaluate potential target companies comprehensively. This entails a thorough examination of various facets of the target company, including its financial, commercial, and operational data. Such a deep dive into the information of the target company is crucial for gaining insights into its current state and determining the financial viability of a deal.
The M&A process typically begin with a preliminary evaluation of the target company. This may include high level discussions between buyers and sellers in order to explore how the two companies may fit together strategically, how their values can align, as well as potential synergies could be realized. Previously, Anand Jayapalan had pointed out that there is a good deal of preliminary work to be done in assessing the market, the target company, and the financial reports when planning to enter a merger or acquisition deal.
