The Merger and Acquisition Market

The market for mergers and acquisitions is one of corporate finance’s most dynamic and lucrative markets. Although it’s not a method that every company can consider, for those who are able to make it work, M&A can create tremendous growth potential. M&A transactions can be a bit complicated and require careful planning and execution in order to be successful. The M&A process starts with an initial assessment of the company. This could include high-level discussions between buyers and sellers to evaluate how the companies could be strategically positioned to work together and what their values are aligned and what synergies might be a possibility.

After the initial evaluation is completed, the acquiring firm could make a preliminary offer to the company it wants to acquire. It can be done by way of an outright purchase or a tender. A firm can purchase all the shares of a company as an outright acquisition. This does not affect the target company’s board of directors and management. It typically occurs for a higher price than what the shares were worth prior to their acquisition.

A tender offer allows companies that are publicly traded to reach out to shareholders of a publicly held company and offer to purchase their shares at a price that is agreed upon by both parties. This is a form of a hostile takeover and requires the approval by the shareholders of the company being targeted before it can be completed.

The main reason for a business to pursue M&A is the potential to realize revenue and cost synergies through the combination of the two companies. If a car manufacturer purchases an established seat belt manufacturer it will gain economies of scale that will lower the cost per item as production grows. Companies also use M&A to gain access to technology that would be expensive or time-consuming to develop internally.

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