The Merger and Acquisition Market

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The market for mergers and acquisitions is one of corporate finance’s most active and lucrative markets. M&A is not a method that every company should implement but for those that can, it could provide enormous growth potential. M&A transactions are typically complex and require careful planning and execution to be successful. The M&A process begins with a preliminary assessment of the company. This could include discussions at a high level between buyers and vendors to determine how the companies can strategically fit together.

Once the initial evaluation has been completed, the acquirer may present a preliminarily offered offer to the company that it is interested in. Based on the circumstances, this can be done by way of an outright acquisition or tender offer. An outright acquisition involves the buyer buying all shares of the company being targeted. This is done without the board of directors or management of the company being targeted.

A tender offer allows companies that are publicly traded to reach out to shareholders of a publicly held company and offer to buy their shares at a price agreed upon by both parties. This is a hostile takeover and requires the shareholders of the company to be in agreement with the transaction before it is completed.

The opportunity to realize the benefits of revenue and cost synergies by the combination of two companies is the primary reason behind companies looking to M&A. For instance when a car manufacturer buys a company that manufactures seat belts, it can benefit from economies of scale and reduce the cost per unit as production increases. M&A can also be used by companies to access technologies that would be costly or time-consuming to develop in-house.