The Intricacies of Mergers and Acquisitions

Mergers and acquisitions are strategic tools that provide ways to grow, market expansion and competitive advantage. However, they also present challenges and risks. Executives and managers who are dealing with the M&A environment must understand the complexities associated with M&A.

M&As result in a range of benefits for the acquirer and target companies, including greater economies of scale, improved purchasing power, increased distribution capabilities and access to new materials and non-material resources, specialized corporate capabilities as well as risk diversification, geographic expansion, and many more.

The M&A process can take a lot of time, energy and funds. The companies involved may have to sacrifice other opportunities. A merger or acquisition could also lead to a loss of revenue for consumers as the combined market share could make them pay more for goods and services.

A hostile transaction could be an acquisition. In hostile transactions, the company that is acquiring offers the owners of the target company a sum above what they believe be the value of the business. The acquiring company then acquires over the business of the target thus removing any future competition and gaining a bigger market share.

The company that acquires the assets can purchase the assets of the company that it is targeting leaving the target company with nothing but cash (and maybe some debt, if any). In this type of transaction the acquiring firm typically does not retain its staff of the acquired company. However, it may hire some of its employees and maintain the name of the acquired company.