Mergers and acquisitions (M&A) is an approximate$3.6 trillion eventthat alters the long-term outlook of industries, companies, and even individual careers.
Next to an IPO, a merger or acquisition is the biggest corporate action that a business establishment can take in their lifetime. The role of M&A in the corporate world is so high that it is deemed almost ignorant for an entrepreneur to not know about it. We, at Marquee, are highly involved in the merger and acquisitions space and thus have made a guide for those in the business domain to understand the two concepts intimately.
So let’s start with the mergers and acquisitions meaning.
What is mergers and acquisitions?
In order to understand the mergers and acquisitions meaning, it is important for entrepreneurs to look into both the concepts separately.
What are mergers?
Mergers are a business strategy where two individual businesses are combined in a single entity to increase the overall operational and financial strengths of the company. There are usually two reasons why companies take the merger route:
- Save the production costs
- Get enough capital to enter a new market space or launch a new product.
What is an acquisition?
Business acquisition is basically the purchase of all or a part of a target company. It is a way for a company to acquire another company’s strengths and synergies to become a bigger brand. The reasons behind acquisitions generally lie in:
- Greater market share
- Access to new technologies and underutilized assets
- Access to the new distribution channels.
A simpler definition of what is an acquisition can also be that it is an event where the acquiring company purchases the target company’s asset and gains complete decision making power over it.
Now while mergers and acquisitions are used as interchangeable terms, there are some key differences that lie between both. There are some clear distinctive points in merger vs acquisition strategies.
Mergers vs acquisitions
Merger occurs when two individual entities combine their resources and operations to become one new brand. While on the other hand, acquisition is the takeover of one business entity by another brand.
Let us highlight the difference between merger and acquisition further. Typically, in mergers, a new establishment is formed while in acquisition no new company is brought into existence. Instead, the smaller company is made to cease to exist as its assets become part of the large business. One of the reasons why the difference between merger and acquisition is less talked about and both the terms are used interchangeably is the negative commotion that is attached to the word ‘acquisition’.
What are the different type of merger and acquisitions deals?
Once you have got an understanding of what is merger and acquisitions, the next part lies in understanding what are the different types of mergers and acquisition deals. There can be a number of m&a deal structures that a company follows, but the most common ones of those are:
This type of merger and acquisition strategies are prevalent in events where two companies, both operating in the same market come together to build a strong market share. This approach is best suited when businesses are looking to decrease competitions and build economies of scale.
In this approach, the two companies work in the same domain but are at separate levels of production. This could be a retailer merging with a wholesaler or vice versa. It is ideal for smoothening operations, increasing efficiencies, and cutting down business costs.
It is one of the most popular types of acquisition. In this approach, the target company and the acquirer offer different products but operate in the same market. They can be indirect competitors whose products complement each other’s business model. The key reason behind this popular m&a deal structure is to allow the business entity to increase the market share and expand the product line.
These types of mergers happen between companies whose businesses are completely unrelated. Here, two businesses come together to expand market reach or enter a new product or service space.
While this was about the types of mergers, when we look whole and sole at the types of acquisitions, two distinctive elements will come up – Stock purchase and Asset purchase. In stock purchase, the acquirer pays the target firm’s shareholders shares or cash in exchange for their share of the company’s stock. In case of asset purchase, the acquirer pays for the target’s assets.
Now irrespective of the types of merger and acquisition deals, the end results are more or less the same. Let us look into the reasons behind why businesses go for m&a in the next section.
Why mergers and acquisitions continue to be a profitable prospective for businesses?
Irrespective of the merger and acquisition strategies a business adopts, the end result of it more or less falls under one of these categories –
Greater growth– Merging or acquiring of two businesses enables them to achieve greater income and revenue at a much faster rate than they would have been able to achieve organically as individual units.
Better synergy– M&A, when done right, helps create better synergy or value proposition. In the event of m&a, two firms are able to bring their strengths and resources into a new entity which is a best outcome of both the businesses’ individual efforts.
Diversification– Mergers and acquisitions enable businesses to move in a new domain and enter a new territory with new target audience and market reach. An example of this could be seen inGE moving to banking from electronics.
Horizontal and vertical integration– Merger and acquisition of two businesses, whether vertical or horizontal, helps create a new business entity which has a powerful distribution channel, a greater market presence, and a higher probability of earning great revenues.
Up until this point, we have looked into the different facets of the m&a analysis. But a key factor that remains to be discussed is the merger and acquisition process.
There are a number of different processes that individual M&A facilitator businesses offer to both the parties. What we are going to highlight now is specific to Marquee. We have used the same steps when we helped a crypto payment platform, a flash sales ecommerce platform, successfully achieve M&A. Without further ado, let us dive into them.
Merger and acquisitions process
- Build an acquisition strategy– The first step in understanding how do acquisitions work lies in making a strategy around the event. It revolves around the acquirer having an understanding of what they expect to achieve from the acquisition.
- Set an M&A search guideline– The key elements of identifying the best potential target companies are set here. It can be their geographical location, the y-o-y profit numbers, and the customer base.
- Initiate the acquisition planning– The acquirer creates a contact with potential companies (with a value offering) to check how willing they are to a potential acquisition and merger.
- Conduct valuation analysis– The acquirer asks the target company to provide them substantial information around their financials and business models etc. to help gauge them as an acquisition target.
- Negotiation– Once the vibes have been checked between the companies and the financials are verified, the acquirer presents an initial offer to the target company. At this point, the negotiation starts between them in terms of minute operational and business processes.
- M&A due diligence– It is a process that aims at confirming the acquirer’s assessment of the target company’s assets by conducting a detailed examination of every aspect of the target company’s operations – customers, finances, assets and liabilities, etc.
- Sale and purchase contract– The parties here make a final decision on the purchase agreement and decide whether it would be a stock purchase or an asset one. Here the details of the finances are discussed and laid down in black and white.
- Integration of the M&A– The deal is signed off and the management teams of both the forms work together to merge the firms into one establishment.
So here was everything there is to know about mergers and acquisitions – what it is, how businesses benefit from the event, and the process that is followed to see them through. Now that you have understood how it works, it is time to prepare your business to either be acquired or to acquire another firm. Our M&Ateam at Marqueecan help you with both.Get in touchwith us today.
- Horizontal merger.
- Vertical merger.
- Congeneric mergers.
- Market-extension or product-extension merger.
Equity financing, in the context of M&A financing, can mean two things: 1) The company selling its equity to raise cash to fund the deal, and 2) A stock swap or the company using equity as a currency (instead of cash) to acquire the shares of the target company.What are the 3 stages of mergers and acquisitions? ›
The three stages in question are pre-combination, combination (involving the integration of companies) and solidification and advancement (which forms the new entity). Pre-combinationrefers to processes that take place before the M&A is completely legal.What do you understand by merger and acquisition? ›
Mergers and acquisitions, or M&A for short, involves the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy – where the whole (new company) is greater than the sum of its parts (the former two separate entities).What is M&A in simple terms? ›
Mergers and acquisitions, or M&A for short, involves the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy – where the whole (new company) is greater than the sum of its parts (the former two separate entities).What is the largest M&A transaction of all time? ›
As of August 2022, the largest ever acquisition was the 1999 takeover of Mannesmann by Vodafone Airtouch plc at $183 billion ($297.7 billion adjusted for inflation).What are the 4 parts of equity? ›
Four components that are included in the shareholders' equity calculation are outstanding shares, additional paid-in capital, retained earnings, and treasury stock. If shareholders' equity is positive, a company has enough assets to pay its liabilities; if it's negative, a company's liabilities surpass its assets.What are the 5 components of equity? ›
Components of equity include capital contributed by owners, preferred shares, treasury shares, retained earnings, accumulated other comprehensive income, etc.What is the key concept of equity? ›
Equity is defined as “the state, quality or ideal of being just, impartial and fair.”1 The concept of equity is synonymous with fairness and justice. It is helpful to think of equity as not simply a desired state of affairs or a lofty value.What are the 5 stages of merger? ›
- Assessment and preliminary review.
- Negotiation and letter of intent.
- Due diligence.
- Negotiations and closing.
- Post-closure integration/implementation.
There are five commonly-referred to types of business combinations known as mergers: conglomerate merger, horizontal merger, market extension merger, vertical merger and product extension merger.What are the two examples in merger and acquisition? ›
- Successful acquisition: Disney, Pixar and Marvel. ...
- Successful acquisition: Google and Android. ...
- Successful merger: Exxon and Mobil.
The primary difference between mergers and acquisitions is that a merger is the combining of two organizations into an entirely new entity, while an acquisition is when a company absorbs another, but no new organization is created.What is a good example of a merger? ›
Exxon and Mobil
The Exxon and Mobil deal is the perfect example of a successful merger. In 1998, Exxon and Mobil made headlines after announcing their plans to merge. At the time, the companies were already the first and second-largest oil producers in the United States.
Often businesses work with M&A consultants or technology partners with experience in the M&A process to ensure success. The merger & acquisition process is very complex, yet can be broken down into four phases: due diligence, agreement, integration, and value attainment.What is another word for M&A? ›
The terms "mergers" and "acquisitions" are often used interchangeably, but they differ in meaning. In an acquisition, one company purchases another outright. A merger is the combination of two firms, which subsequently form a new legal entity under the banner of one corporate name.What is the difference between joint venture and M&A? ›
Mergers and acquisitions are defined as the consolidation of companies. These are modes by which different business entities combine. Joint ventures, on the other hand, are the way for two business entities to build a contractual arrangement and work together to achieve the common goal of growth and profits.Which industry has most M&A? ›
What Are the Industries Most Likely to See Mergers and Acquisitions (M&As)? Mergers and acquisitions (M&As) are most common in the healthcare, technology, financial services, and retail sectors.Which sector has the most M&A? ›
The heavy hitters of 2021 remain the dominant deal makers of 2022. The technology, media, and telecommunications sector (TMT) has outperformed other industries—accounting for 30 percent of total deal value (lagging its 32 percent in 2021 but nearly matching its 2020 performance of 31 percent).What companies will merge in 2022? ›
- Microsoft acquisition of Activision Blizzard.
- Broadcom acquisition of VMWare.
- Oracle acquisition of Cerner.
- AMD acquisition of Xilinx.
- Prologis merger with Duke Realty.
- Orange merger with Grupo MásMóvil.
- DSM merger with Firmenich.
- Adobe acquisition of Figma.
In short, macroeconomics is arguably the most important determinant of equity returns. This fact leads to what I call the “Golden Rule for Stock Market Investing.” It simply says, “Stay bullish on stocks unless you have good reason to think that a recession is around the corner.”What are 5 examples of equity? ›
There are several types of equity accounts that combine to make up total shareholders' equity. These accounts include common stock, preferred stock, contributed surplus, additional paid-in capital, retained earnings, other comprehensive earnings, and treasury stock.What are the pillars of equity? ›
- Access to comprehensive reproductive health services.
- Affordability of care.
- Parenting with respect and dignity.
- Workplace and caregiving supports.
Two common types of equity include stockholders' and owner's equity.What are the 7 types of equity funding? ›
- 01 of 07. Initial Public Offering. ...
- 02 of 07. Small Business Investment Companies. ...
- 03 of 07. Angel Investors for Equity Financing. ...
- 04 of 07. Mezzanine Financing. ...
- 05 of 07. Venture Capital. ...
- 06 of 07. Royalty Financing. ...
- 07 of 07. Equity Crowdfunding.
The six principles of work equity are diversity, inclusion, equal opportunity, fairness, transparency, and accountability. Combined, they create a fair and inclusive workplace where all individuals have equivalent job and promotion opportunities.What is equity explain with example? ›
Equity can be calculated by subtracting liabilities from assets and can be applied to a single asset, such as real estate property, or to a business. For example, if someone owns a house worth $400,000 and owes $300,000 on the mortgage, the difference of $100,000 is equity.What are the basic assumptions of equity? ›
Assumptions of the Equity Theory
The theory demonstrates that the individuals are concerned both with their own rewards and also with what others get in their comparison. Employees expect a fair and equitable return for their contribution to their jobs.
Epstein (2005) proposed six determinants of merger success: due diligence, strategic vision and fit, deal structure, pre-merger planning, external factors, and post-merger integration.What is the M&A lifecycle? ›
The merger and acquisition process includes all the steps involved in merging or acquiring a company, from start to finish. This includes all planning, research, due diligence, closing, and implementation activities, which we will discuss in depth in this article.
The three main types of mergers are: Horizontal. Vertical. Concentric.What are the 3 system acquisition strategies? ›
Describe three ways to acquire a system: custom, packaged, and outsourced alternatives.What is an acquisition checklist? ›
A business acquisition due diligence checklist within HR typically unearths employee contracts, agreements and a summary of current recruitment initiatives. Human Resources Agreements. Copies of all employment and severance agreements and indicate those affected by the transaction.How are M&A teams structured? ›
An efficient and typical M&A team structure for an integration consists of three different layers: a steering committee, an Integration Management Office (IMO), and a variety of task-force teams.What are the two methods of merger? ›
A horizontal merger is when competing companies merge—companies that sell the same products or services. The T-Mobile and Sprint merger is an example of a horizontal merger. Meanwhile, a vertical merger is a merger of companies with different products, such as the AT&T and Time Warner combination.What are 10 common reasons for mergers and acquisitions? ›
- Value creation. Two companies may undertake a merger to increase the wealth of their shareholders. ...
- Diversification. ...
- Acquisition of assets. ...
- Increase in financial capacity. ...
- Tax purposes. ...
- Incentives for managers. ...
- What is a Merger? ...
- Related Readings.
Vertical merger: A merger between companies that are along the same supply chain (e.g., a retail company in the auto parts industry merges with a company that supplies raw materials for auto parts.) Market-extension merger: A merger between companies in different markets that sell similar products or services.What is the most common merger? ›
1. Vertical Merger. Vertical mergers are simple and common. It's done to combine two companies that provide similar or common goods or services, in an effort to bring together different supply chain functions that either organization might operate with.What's the biggest purchase ever? ›
As of November 2022, the largest acquisitions ever made was the takeover of Mannesmann by Vodafone occurred in 2000, and was worth ~$203 billion. Vodafone, a mobile operator based in the United Kingdom, acquired Mannesmann, a German-owned industrial conglomerate company.Why do companies do M&A? ›
Mergers and acquisitions (M&As) are the acts of consolidating companies or assets, with an eye toward stimulating growth, gaining competitive advantages, increasing market share, or influencing supply chains.
There are four main types of acquisitions based on the relationship between the buyer and seller: horizontal, vertical, conglomerate, and congeneric.What are the four types of mergers and acquisition? ›
- Horizontal merger.
- Vertical merger.
- Congeneric mergers.
- Market-extension or product-extension merger.
Mergers and acquisitions mean greater financial strength for both companies involved in the transaction. Having greater economic power can lead to higher market share, more influence over customers, and reduced competitive threat. In most cases, bigger companies are harder to compete against.What are the 5 reasons for companies merging? ›
Companies merge to expand their market share, diversify products, reduce risk and competition, and increase profits. Common types of company mergers include conglomerates, horizontal mergers, vertical mergers, market extensions and product extensions.How do you know if a merger is successful? ›
The success of mergers and acquisitions is often calculated by the IRR (internal rate of return), ROI (return on investment), or WACC (weighted average cost of capital).How many types of M&A are there? ›
There are five commonly-referred to types of business combinations known as mergers: conglomerate merger, horizontal merger, market extension merger, vertical merger and product extension merger.What are the different types of M&A transactions? ›
There are a number of different types of mergers and acquisitions, including vertical, horizontal, congeneric, market-extension, product-extension, and conglomerate.What do big 4 M&A do? ›
BIG4 - FAS, M&A Advisory
Drawing on industry knowledge and leveraging an extensive global network, the M&A Advisory team provides sector-focused advice on the sale process from strategic positioning to close, and helps execute acquisitions, alliances and mergers.
For a high-growth company, acquisitions fundamentally boil down to one of three types: (1) team buy, (2) product buy, or (3) strategic buy. There is actually a fourth type of acquisition companies can make, often called a “synergistic” acquisition.Is M&A a strategy or a tool? ›
Expert practitioners caution that M&A by itself is not a strategy, rather M&A is a powerful tool that can help a company achieve its objectives (sometimes at an accelerated pace). When first considering an M&A transaction, it is critical to identify a clear strategy and objective.
- Cash on the acquirer's balance sheet. This has the lowest "cost" to the company. ...
- Debt the acquirer raises from the capital markets. ...
- Equity the acquirer issues (shares it sells to the public or issues to the target company as part of the deal). ...
- Mix of cash, debt or equity.
Education. Practicing mergers and acquisitions requires a strong proficiency in accounting, finance, law, strategy, and business. While it is not necessary to have an advanced degree, many M&A professionals have MBAs, and less frequently, law degrees.What is the most important stage of the M&A process? ›
This is one of the most critical steps in the M&A process. Here, the target company provides the buyer with important information about its business — namely, financials — so the buyer can evaluate its value, both as a stand-alone company and as a potential merger or acquisition.
Our M&A Advisory Group provides integrated M&A advisory services comprising Corporate Finance Advisory (CFA), M&A Transaction Services (TS), Valuation and Modelling (V&M), including Infrastructure & Capital Project (I&CP) Advisory services.What makes a good M&A target? ›
These are: Growth, Profitability, Leverage, Size, Liquidity and Valuation.What are the two types of merger? ›
The five major types of mergers are conglomerate, congeneric, market extension, horizontal, and vertical.