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India has emerged as one of the top countries with respect to merger and acquisition deals. In 2007, the first two
months alone accounted for merger and acquisition deals worth $40 billion in India. The estimated figures for the
entire year projected a total of more than $ 100 billions worth of mergers and acquisitions in India. This is two fold
growth from 2006 and a growth of almost four times from 2005.
In the banking sector, important mergers and acquisitions in India in recent years include the merger between
IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million
(Rs. 7.6 billion in Indian currency). Another important merger was that between Centurion Bank and Bank of
Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion
Bank of Punjab with 235 branches in different regions of India.
In the telecom sector, an increase of stakes by SingTel from 26.96 % to 32.8 % in Bharti Telecom was worth
$252 million (Rs. 10.9 billion in Indian currency). In the Foods and FMCG sector a controlling stake of Shaw
Wallace and Company was acquired by United Breweries Group owned by Vijay Mallya. This deal was worth
$371.6 million (Rs. 16.2 billion in Indian currency). Another important one in this sector, worth $48.2 million (Rs
2.1 billion in Indian currency) was the acquisition of 90% stake in Williamson Tea Assam by McLeod Russell
India In construction materials 67 % stake in Ambuja Cement India Ltd was acquired by Holcim, a Swiss
company for $634.9 million (Rs 27.3 billion in Indian currency).
• Mahindra and Mahindra acquired 90% stake in the German company Schoneweiss.
Mergers and Acquisitions History often surprises us as we come to know that the concepts of
Mergers and Acquisitions are not new, on the contrary they are continuing from the early years
of history.
Mergers and Acquisitions History helps us to understand the evolution of the concepts of Mergers
and Acquisitions in the world. If we involve in the detailed analysis of the History of Merger of
Acquisitions, we will find that Mergers and Acquisitions started to take place in the world from very early
years.
Among the mergers and acquisitions cycles cited above, the most significant mergers of USA took place
in the last half of 1990s. The reason of this was that, the stock market was quite strong in US in that
period and this strong stock market supported the high incidence of mergers and acquisitions. The
mergers and acquisitions of this period involved big brands and huge amount of dollars.
• In 1988, Tower Federal Savings Bank of Indiana acquired two financial institutions of Michigan.
Then in 1991, the Standard Federal Bank strengthened their position in Ohio by acquiring a
financial institution of Toledo. These two acquisitions had great impact on the banking Sector of
USA.
Mergers and Acquisitions Law exist in every country of the world. But, the laws and
regulations regarding Mergers and Acquisitions differ from country to country. In US the
Mergers and Acquisitions Law are different from that of Nigeria or Thailand. So, to get a real
picture of the Mergers and Acquisitions Law, we have to discuss the Mergers and
Acquisitions Law of different countries.
• Mergers and Acquisitions Law in United States of America
• In Unites States of America(USA), Mergers and Acquisitions Law have been generated
keeping in mind the interests of the shareholders. To protect the shareholders, US govt.
constituted the law that, a merger deal can be finalized only through the process of voting by
the Board of directors and voting by the shareholders of the two separate companies.
In USA, there are both state laws and federal laws to administer Mergers and Acquisitions.
• State Laws of USA regarding Mergers and Acquisitions
• The State Laws determine the process through which any merger or acquisition can be approved
in the country. These laws also ensure that, the shareholders of the target firm receive fair
value for their shares. In USA, State laws has also been generated keeping in mind the issue of
Hostile Takeover. These laws protect any target company from Hostile Takeover by providing
financial and legal support.
• Federal Laws of USA regarding Mergers and Acquisitions
• The Federal Laws keeps a check on the size of the joint firm after a Merger or Acquisition, so
that the merged firm cannot develop monopolistic power. The Federal Laws of USA ensures
that, no big merged firm involves in any business activity which is unlawful.
Just like USA, all the other countries have their own laws and regulations regrading Mergers and
Acquisitions. In Nigeria, for approval of any Merger or Acquisition deal, a majority agreement is
required to be produced before court. The court sanctions the deal by issuing order. On the
contrary, in Thailand, there are no fixed laws and regulations regarding Mergers and
Acquisitions. The companies are free to set their own terms and conditions in case of any
merger or acquisition.
http://finance.mapsofworld.com/merger-acquisition/law.html
Mergers and acquisitions are aimed at improving profits and productivity of a company. Simultaneously,
the objective is also to reduce expenses of the firm. However, mergers and acquisitions are not always
successful. At times, the main goal for which the process has taken place loses focus. The success of
mergers, acquisitions or takeovers is determined by a number of factors. Those mergers and
acquisitions, which are resisted not only affects the entire work force in that organization but also harm
the credibility of the company. In the process, in addition to deviating from the actual aim, psychological
impacts are also many. Studies have suggested that mergers and acquisitions affect the senior
executives, labor force and the shareholders.
Employees:
• Impact Of Mergers And Acquisitions on workers or employees:
Aftermath of mergers and acquisitions impact the employees or the workers the most. It is a
well known fact that whenever there is a merger or an acquisition, there are bound to be lay
offs. In the event when a new resulting company is efficient business wise, it would require less
number of people to perform the same task. Under such circumstances, the company would
attempt to downsize the labor force. If the employees who have been laid off possess sufficient
skills, they may in fact benefit from the lay off and move on for greener pastures. But it is
usually seen that the employees those who are laid off would not have played a significant role
under the new organizational set up. This accounts for their removal from the new organization
set up. These workers in turn would look for re employment and may have to be satisfied with a
much lesser pay package than the previous one. Even though this may not lead to drastic
unemployment levels, nevertheless, the workers will have to compromise for the same. If not
drastically, the mild undulations created in the local economy cannot be ignored fully.
Shareholders:
• Impact of mergers and acquisitions on shareholders:
We can further categorize the shareholders into two parts:
• The Shareholders of the acquiring firm
• The shareholders of the target firm.
Benefits of Mergers and Acquisitions are manifold. Mergers and Acquisitions can generate cost efficiency
through economies of scale, can enhance the revenue through gain in market share and can even generate tax
gains. Benefits of Mergers and Acquisitions are the main reasons for which the companies enter into these deals.
The main benefits of Mergers and Acquisitions are the following:
Greater Value Generation
Companies go for Mergers and Acquisition from the idea that, the joint company will be able to generate more
value than the separate firms. When a company buys out another, it expects that the newly generated
shareholder value will be higher than the value of the sum of the shares of the two separate companies.
Mergers and Acquisitions can prove to be really beneficial to the companies when they are weathering through
the tough times. If the company which is suffering from various problems in the market and is not able to
overcome the difficulties, it can go for an acquisition deal.
If a company, which has a strong market presence, buys out the weak firm, then a more competitive and cost
efficient company can be generated.
Here, the target company benefits as it gets out of the difficult situation and after being acquired by the large firm,
the joint company accumulates larger market share. This is because of these benefits that the small and less
powerful firms agree to be acquired by the large firms.
• when a firm wants to introduce new products through research and development
Mergers and Acquisitions may generate tax gains, can increase revenue and can reduce the cost of capital.
http://finance.mapsofworld.com/merger-acquisition/benefits.html
A sound strategic planning can protect any merger from failure. The important issues that should be
kept in mind at the time of developing Merger and Acquisition Strategy, are discussed in the
following page.
Merger and Acquisition Strategies are extremely important in order to derive the maximum benefit
out of a merger or acquisition deal. It is quite difficult to decide on the strategies of merger and
acquisition , specially for those companies who are going to make a merger or acquisition deal for the
first time. In this case, they take lessons from the past mergers and acquisitions that took place in the
market between other companies and proved to be successful.
Through market survey and market analysis of different mergers and acquisitions, it has been found out
that there are some golden rules which can be treated as the Strategies for Successful Merger or
Acquisition Deal.
• The buyer buys the shares, and therefore control, of the target company
being purchased. Ownership control of the company in turn conveys
effective control over the assets of the company, but since the company is
acquired intact as a going business, this form of transaction carries with it
all of the liabilities accrued by that business over its past and all of the
risks that company faces in its commercial environment.
• The buyer buys the assets of the target company. The cash the target
receives from the sell-off is paid back to its shareholders by dividend or
through liquidation. This type of transaction leaves the target company as
an empty shell, if the buyer buys out the entire assets. A buyer often
structures the transaction as an asset purchase to "cherry-pick" the assets
that it wants and leave out the assets and liabilities that it does not. This
can be particularly important where foreseeable liabilities may include
future, unquantified damage awards such as those that could arise from
litigation over defective products, employee benefits or terminations, or
environmental damage. A disadvantage of this structure is the tax that
many jurisdictions, particularly outside the United States, impose on
transfers of the individual assets, whereas stock transactions can
frequently be structured as like-kind exchanges or other arrangements
that are tax-free or tax-neutral, both to the buyer and to the seller's
shareholders.
The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation
where one company splits into two, generating a second company separately listed on a stock
exchange.
[edit] Merger
In business or economics a merger is a combination of two companies into one larger
company. Such actions are commonly voluntary and involve stock swap or cash payment to
the target. Stock swap is often used as it allows the shareholders of the two companies to
share the risk involved in the deal. A merger can resemble a takeover but result in a new
company name (often combining the names of the original companies) and in new branding;
in some cases, terming the combination a "merger" rather than an acquisition is done purely
for political or marketing reasons.
[edit] Classifications of mergers
Horizontal merger - Two companies that are in direct competition and share similar product
lines and markets (eg: Sirius/XM)
Vertical merger - A customer and company or a supplier and company. (eg: an ice cream
maker merges with the dairy farm whom they previously purchased milk from; now, the milk
is 'free')
Market-extension merger - Two companies that sell the same products in different markets
(eg: an ice cream maker in the United States merges with an ice cream maker in Canada)
Product-extension merger - Two companies selling different but related products in the
same market (eg: a cone supplier merging with an ice cream maker).
Conglomeration - Two companies that have no common business areas.
• Congeneric merger/concentric mergers occur where two merging firms are
in the same general industry, but they have no mutual buyer/customer or
supplier relationship, such as a merger between a bank and a leasing
company. Example: Prudential's acquisition of Bache & Company.
There are two types of mergers that are distinguished by how the merger is financed. Each
has certain implications for the companies involved and for investors:
Purchase mergers - As the name suggests, this kind of merger occurs when one company
purchases another. The purchase is made with cash or through the issue of some kind of debt
instrument; the sale is taxable.
Acquiring companies often prefer this type of merger because it can provide them with a tax
benefit. Acquired assets can be written-up to the actual purchase price, and the difference
between the book value and the purchase price of the assets can depreciate annually, reducing
taxes payable by the acquiring company.
Consolidation mergers - With this merger, a brand new company is formed and both
companies are bought and combined under the new entity. The tax terms are the same as
those of a purchase merger.
A unique type of merger called a reverse merger is used as a way of going public without the
expense and time required by an IPO.
The contract vehicle for achieving a merger is a "merger sub".
The occurrence of a merger often raises concerns in antitrust circles. Devices such as the
Herfindahl index can analyze the impact of a merger on a market and what, if any, action
could prevent it. Regulatory bodies such as the European Commission, the United States
Department of Justice and the U.S. Federal Trade Commission may investigate anti-trust
cases for monopolies dangers, and have the power to block mergers.
Accretive mergers are those in which an acquiring company's earnings per share (EPS)
increase. An alternative way of calculating this is if a company with a high price to earnings
ratio (P/E) acquires one with a low P/E.
Dilutive mergers are the opposite of above, whereby a company's EPS decreases. The
company will be one with a low P/E acquiring one with a high P/E.
The completion of a merger does not ensure the success of the resulting organization; indeed,
many mergers (in some industries, the majority) result in a net loss of value due to problems.
Correcting problems caused by incompatibility—whether of technology, equipment, or
corporate culture— diverts resources away from new investment, and these problems may be
exacerbated by inadequate research or by concealment of losses or liabilities by one of the
partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating
inefficiency, and conversely the new management may cut too many operations or personnel,
losing expertise and disrupting employee culture. These problems are similar to those
encountered in takeovers. For the merger not to be considered a failure, it must increase
shareholder value faster than if the companies were separate, or prevent the deterioration of
shareholder value more than if the companies were separate. A Merger company is always
limited.
[edit] Distinction between mergers and acquisitions
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things. [2]
When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to
exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a "merger of equals". Both
companies' stocks are surrendered and new company stock is issued in its place. For example,
in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist
when they merged, and a new company, GlaxoSmithKline, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company
will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim
that the action is a merger of equals, even if it is technically an acquisition. Being bought out
often carries negative connotations, therefore, by describing the deal euphemistically as a
merger, deal makers and top managers try to make the takeover more palatable. An example
of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely
referred to in the time, and is still now, as a merger of the two corporations.
A purchase deal will also be called a merger when both CEOs agree that joining together is in
the best interest of both of their companies. But when the deal is unfriendly - that is, when the
target company does not want to be purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether the
purchase is friendly or hostile and how it is announced. In other words, the real difference lies
in how the purchase is communicated to and received by the target company's board of
directors, employees and shareholders. It is quite normal though for M&A deal
communications to take place in a so called 'confidentiality bubble' whereby information
flows are restricted due to confidentiality agreements (Harwood, 2005).
[edit] Business valuation
The five most common ways to valuate a business are
• asset valuation,
• historical earnings valuation,
• future maintainable earnings valuation,
• relative valuation (comparable company & comparable transactions),
• discounted cash flow (DCF) valuation
Professionals who valuate businesses generally do not use just one of these methods but a
combination of some of them, as well as possibly others that are not mentioned above, in
order to obtain a more accurate value. These values are determined for the most part by
looking at a company's balance sheet and/or income statement and withdrawing the
appropriate information. The information in the balance sheet or income statement is
obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or
an Audit.
Accurate business valuation is one of the most important aspects of M&A as valuations like
these will have a major impact on the price that a business will be sold for. Most often this
information is expressed in a Letter of Opinion of Value (LOV) when the business is being
valuated for interest's sake. There are other, more detailed ways of expressing the value of a
business. These reports generally get more detailed and expensive as the size of a company
increases, however, this is not always the case as there are many complicated industries
which require more attention to detail, regardless of size.
In many states, no marketplace currently exists for the mergers and acquisitions of privately
owned small to mid-sized companies. Market participants often wish to maintain a level of
secrecy about their efforts to buy or sell such companies. Their concern for secrecy usually
arises from the possible negative reactions a company's employees, bankers, suppliers,
customers and others might have if the effort or interest to seek a transaction were to become
known. This need for secrecy has thus far thwarted the emergence of a public forum or
marketplace to serve as a clearinghouse for this large volume of business. In some states, a
Multiple Listing Service (MLS) of small businesses for sale is maintained by organizations
such as Business Brokers of Florida (BBF). Another MLS is maintained by International
Business Brokers Association (IBBA).
At present, the process by which a company is bought or sold can prove difficult, slow and
expensive. A transaction typically requires six to nine months and involves many steps.
Locating parties with whom to conduct a transaction forms one step in the overall process
and perhaps the most difficult one. Qualified and interested buyers of multimillion dollar
corporations are hard to find. Even more difficulties attend bringing a number of potential
buyers forward simultaneously during negotiations. Potential acquirers in an industry simply
cannot effectively "monitor" the economy at large for acquisition opportunities even though
some may fit well within their company's operations or plans.
An industry of professional "middlemen" (known variously as intermediaries, business
brokers, and investment bankers) exists to facilitate M&A transactions. These professionals
do not provide their services cheaply and generally resort to previously-established personal
contacts, direct-calling campaigns, and placing advertisements in various media. In servicing
their clients they attempt to create a one-time market for a one-time transaction. Stock
purchase or merger transactions involve securities and require that these "middlemen" be
licensed broker dealers under FINRA (SEC) in order to be compensated as a % of the deal.
Generally speaking, an unlicensed middleman may be compensated on an asset purchase
without being licensed. Many, but not all, transactions use intermediaries on one or both
sides. Despite best intentions, intermediaries can operate inefficiently because of the slow and
limiting nature of having to rely heavily on telephone communications. Many phone calls fail
to contact with the intended party. Busy executives tend to be impatient when dealing with
sales calls concerning opportunities in which they have no interest. These marketing
problems typify any private negotiated markets. Due to these problems and other problems
like these, brokers who deal with small to mid-sized companies often deal with much more
strenuous conditions than other business brokers. Mid-sized business brokers have an average
life-span of only 12–18 months and usually never grow beyond 1 or 2 employees. Exceptions
to this are few and far between. Some of these exceptions include The Sundial Group,
Geneva Business Services, Corporate Finance Associates and Robbinex.
The market inefficiencies can prove detrimental for this important sector of the economy.
Beyond the intermediaries' high fees, the current process for mergers and acquisitions has the
effect of causing private companies to initially sell their shares at a significant discount
relative to what the same company might sell for were it already publicly traded. An
important and large sector of the entire economy is held back by the difficulty in conducting
corporate M&A (and also in raising equity or debt capital). Furthermore, it is likely that since
privately held companies are so difficult to sell they are not sold as often as they might or
should be.
Previous attempts to streamline the M&A process through computers have failed to succeed
on a large scale because they have provided mere "bulletin boards" - static information that
advertises one firm's opportunities. Users must still seek other sources for opportunities just
as if the bulletin board were not electronic. A multiple listings service concept was previously
not used due to the need for confidentiality but there are currently several in operation. The
most significant of these are run by the California Association of Business Brokers (CABB)
and the International Business Brokers Association (IBBA) These organizations have
effectivily created a type of virtual market without compromising the confidentiality of
parties involved and without the unauthorized release of information.
One part of the M&A process which can be improved significantly using networked
computers is the improved access to "data rooms" during the due diligence process however
only for larger transactions. For the purposes of small-medium sized business, these
datarooms serve no purpose and are generally not used.
When one company takes over another and clearly established itself as the new owner, the purchase is called an
acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business
and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go
forward as a single new company rather than remain separately owned and operated. This kind of action is more
precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is
issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,
and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another
and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals,
even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by
describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of
both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be
purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly
or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated
to and received by the target company's board of directors, employees and shareholders.
Synergy
Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the
form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:
• Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money
saved from reducing the number of staff members from accounting, marketing and other departments.
Job cuts will also include the former CEO, who typically leaves with a compensation package.
• Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT
system, a bigger company placing the orders can save more on costs. Mergers also translate into
improved purchasing power to buy equipment or office supplies - when placing larger orders, companies
have a greater ability to negotiate prices with their suppliers.
• Acquiring new technology - To stay competitive, companies need to stay on top of technological
developments and their business applications. By buying a smaller company with unique technologies,
a large company can maintain or develop a competitive edge.
• Improved market reach and industry visibility - Companies buy companies to reach new markets and
grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving
them new sales opportunities. A merger can also improve a company's standing in the investment
community: bigger firms often have an easier time raising capital than smaller ones.
That said, achieving synergy is easier said than done - it is not automatically realized once two companies
merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a
merger does just the opposite. In many cases, one and one add up to less than two.
Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where
there is no value to be created, the CEO and investment bankers - who have much to gain from a successful
M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and
penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a
later section of this tutorial.
Varieties of Mergers
From the perspective of business structures, there is a whole host of different mergers. Here are a few types,
distinguished by the relationship between the two companies that are merging:
• Horizontal merger - Two companies that are in direct competition and share the same product lines and
markets.
• Vertical merger - A customer and company or a supplier and company. Think of a cone supplier
merging with an ice cream maker.
• Market-extension merger - Two companies that sell the same products in different markets.
• Product-extension merger - Two companies selling different but related products in the same market.
There are two types of mergers that are distinguished by how the merger is financed. Each has certain
implications for the companies involved and for investors:
• Purchase Mergers - As the name suggests, this kind of merger occurs when one company
purchases another. The purchase is made with cash or through the issue of some kind of debt
instrument; the sale is taxable.
Acquiring companies often prefer this type of merger because it can provide them with a tax
benefit. Acquired assets can be written-up to the actual purchase price, and the difference
between the book value and the purchase price of the assets can depreciate annually,
reducing taxes payable by the acquiring company. We will discuss this further in part four of
this tutorial.
• Consolidation Mergers - With this merger, a brand new company is formed and both
companies are bought and combined under the new entity. The tax terms are the same as
those of a purchase merger.
Acquisitions
As you can see, an acquisition may be only slightly different from a merger. In fact, it may be different in name
only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and
enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another - there is no
exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel
satisfied with the deal. Other times, acquisitions are more hostile.
In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with
cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one
company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash,
which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y
becomes merely a shell and will eventually liquidate or enter another area of business.
Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a
relatively short time period. A reverse merger occurs when a private company that has strong prospects and is
eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets.
The private company reverse merges into the public company, and together they become an entirely new
public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common goal: they are all meant
to create synergy that makes the value of the combined companies greater than the sum of the two parts. The
success of a merger or acquisition depends on whether this synergy is achieved.
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every
day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to
form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the
reverse and break up companies through spinoffs, carve-outs or tracking stocks.
Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of
dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A
can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions;
they happen all the time. Next time you flip open the newspaper’s business section, odds are good that at least
one headline will announce some kind of M&A transaction.
Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial
discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own
businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of
whether you should cheer or weep when a company you own buys another company - or is bought by one. You
will also be aware of the tax consequences for companies and for investors.
Benefits of Mergers and Acquisitions are manifold. Mergers and Acquisitions can generate cost efficiency
through economies of scale, can enhance the revenue through gain in market share and can even generate tax
gains.
Benefits of Mergers and Acquisitions are the main reasons for which the companies enter into these deals. The
main benefits of Mergers and Acquisitions are the following:
Mergers and Acquisitions can prove to be really beneficial to the companies when they are weathering through
the tough times. If the company which is suffering from various problems in the market and is not able to
overcome the difficulties, it can go for an acquisition deal.
If a company, which has a strong market presence, buys out the weak firm, then a more competitive and cost
efficient company can be generated.
Here, the target company benefits as it gets out of the difficult situation and after being acquired by the large firm,
the joint company accumulates larger market share. This is because of these benefits that the small and less
powerful firms agree to be acquired by the large firms.
• when a firm wants to introduce new products through research and development
Mergers and Acquisitions may generate tax gains, can increase revenue and can reduce the cost of capital.