Mergers and Acquisitions are corporate finance and management strategy dealing with the buying, selling and restructuring of different companies that can aid, finance, or help a growing company
Merger : Merger is a tool used by companies for the purpose of expanding their arena of business or increasing their profitability at large. Usually mergers take place by the mutual consent of the companies concerned and it aims at the benefit of both the concerned companies. Acquisitions can take place without the consent of the concerned company that is acquired by purchasing the majority of shares of the concerned company.
Classification of mergers :When two companies producing a similar product in the same company merge, it is known as Horizontal Merger. When two companies are in the different stages of producing the same product merges, it is known to have Vertical merger. When there is a merger between two companies that are into two complete different spheres of business, it is known as Conglomerate merger. An accretive merger is one wherein, the acquiring company's earnings per share increases whereas a Dilutive merger is one wherein, the earnings per share of the company decreases. Most of the time merges only incur loss to the companies involved.
Acquisition : Acquisition is better known as takeover. Literally it means the buying of one company by another. A friendly acquisition is one in which the companies negotiate before the acquisition actually takes place, whereas a hostile acquisition is one, where the concerned company has absolutely no idea about its acquisition. Acquisitions can be of many types, the most common being where a company purchases the shares of a company and in turn gets the control of the said company. However, the entire liabilities and assets of the company that has been acquired, automatically becomes the assets and liabilities of the company that has acquired the company.
Reverse Takeover : Sometimes a smaller firm acquires a larger company and keep its name for the combined entity. This is known as a reverse takeover.
Business Valuation : The most important aspect of Mergers and Acquisitions is Accurate business valuation because it will have an immense impact on the price of the company that is to be sold.
Financing Mode : Mergers are generally differentiated from acquisitions by the way they are financed and also by the way of their relative sizes. There are several ways to finance a merger and acquisition. The payment may be made in cash. In this case, the shareholders come under the direct control of the company which is purchasing the other one. In the second case, it may be financed by a bank or any other financial institution. It may also raise funds by issuing bonds. An acquisition can also be a combination of cash and debt, or a combination of cash and stock of the purchasing entity.