The Merger and Acquisition Market

The market for mergers and acquisitions is one of corporate finance’s most vibrant and lucrative markets. While it is not a strategy that every business could pursue, for those who are able to make it work, M&A can create tremendous growth potential. M&A transactions are generally complex and require strategic planning and execution in order to be successful. The M&A starts with an initial assessment of the business. This may include high-level talks between vendors and buyers to see how the two companies strategically work together.

After the initial assessment an initial offer could be made to the target company by the acquiring firm. This can be done either by way of an outright purchase or a tender. An outright acquisition is the acquiring company purchasing all shares of the company targeted. This is done without the company’s board of directors and management and typically occurs for more than the shares were worth prior to being purchased.

A tender offer however allows a publicly traded company to directly contact shareholders of a publicly owned company and offer to purchase their shares at a price agreed upon by both parties. This is a hostile takeover and requires shareholders of the company to accept the deal before it can be completed.

The primary reason for a company to consider M&A is the opportunity to reap revenue and cost synergies through the combination of the two companies. If a car manufacturer purchases the seat belt business it will benefit from economies of scale which will lower the cost per piece when production increases. M&A is also used by companies to gain access to technologies that are expensive or time-consuming to develop in-house.

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