Why Companies Go For Mergers and Acquisitions

What is meant by Mergers and Acquisitions?

This is a general term used to refer to the #amalgamation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed. Mergers and acquisitions refers to the buying, selling and combining of different companies to aid a company in a specific industry to grow quickly without having to create another business entity.

Why Merger & Acquisition

Growth due to Internal and #External Expansion:

A  business might grow either by #internal expansion or by external expansion. In the case of internal expansion, a firm grows progressively through procurement of new #assets, substitution of the technologically out-dated equipments and the setting up of new product line. But in external expansion, a firm secures a running business and grows overnight through corporate combinations. These combinations are in the form of mergers, acquisitions, amalgamations and takeovers and have now become important features of #corporate restructuring.

Why Mergers & Acquisitions:

Mergers and acquisitions are strategic decisions taken for boosting up company’s growth by augmenting its production and marketing operations. One of the main reasons that companies opt for a merger or acquisition is that, by conjoining business undertakings, performance will increase and costs will decrease. Essentially, a business will attempt to merge with another business that has complementary #strengths and weaknesses. Many M&A deals allow the #bidder to thrash future competition and gain a larger market share in its product’s market.

Mergers or amalgamations may take two forms:-

#Merger through Absorption:- An absorption is a combination of two or more companies into an ‘existing company’. All companies except one lose their identity in such a merger.

Example: 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist and a new firm GlaxoSmithKline was created.

#Merger through Consolidation:– A consolidation is a combination of two or more companies into a ‘new company’. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company transfers its assets, #liabilities and shares to the acquiring company for cash or exchange of shares.

A fundamental characteristic of merger is that the acquiring company (existing or new) assumes the #ownership of other companies and combines their operations with its own operations.

Reverse Merger

• Is a deal facilitating a private company to become a public company.
• The deal enables private company by listing in a short time period.
• Occurs when a private company has strong prospects and is eager to raise financing, buys a publicly listed shell company.
• Usually the public one is one with, no business and limited assets

Acquisitions and Takeovers

#Reverse Takeover

• Acquisition usually refers to purchase of smaller firm by larger firm
• Sometimes, smaller firm acquire #management control of a larger / longer established company
• Keep its name for combined entity

Friendly Acquisition

• Companies accomodate in negotiations
• Identical to merger of equals

Cognizant to Acquire TriZetto, creating a fully-integrated healthcare technology and operations leadership. With more than $3 billion in combined healthcare revenue, Cognizant and TriZetto will serve nearly 245,000 healthcare providers.

Hostile Acquisition

• Takeover target reluctant to be purchased
• If the #acquiree company has no prior knowledge of offer
• Hostile takeovers do turn friendly most of the times.
• Offer is usually upgraded for smooth acquisitions

Benefits of Mergers and Acquisitions

1. Greater Value Generation
2. Generate Cost Efficiency
3. #Economies of Scale
4. Increase in Market Share
5. Gain higher Competitiveness