Mergers and acquisitions (M & A) have been a major part of business for the past century. M & As occur when companies join together to form a new business entity. This process can range from a simple merger to the purchase of a controlling interest in another company. The reasons companies may opt to undertake an M & A include increased market share or synergy, access to resources and new markets, and/or cost savings.
M & As usually involve complex negotiations and an assessment of each companys long-term strategy. Before an M & A can occur, the target company must agree to be purchased, and a fair (market) price must be determined. Both parties must discuss and agree on all aspects of the merger, including terms of any debt, shares, and options. This can be a lengthy process, but is necessary to ensure that it is in both parties best interest.
The effect of M & As on a company, in terms of its financial performance and resulting value, can be dramatically positive or negative. If a merger brings together two powerful and successful companies, the potential for higher profits, increased market share and improved operations is great. On the other hand, if a weak company merges with a powerful one, the potential for failure is higher. Therefore, a careful and thorough examination of the target companys assets and operations is essential to a successful merger.
M & As also require detailed financial analysis of each companys assets, liabilities, cash flow and other financial metrics. This analysis is vital in determining the economic impact of the deal, both in the short and long-term, and in helping parties assess the merits of the transaction.
Finally, careful consideration must be given to how the M & A will be structured. There are several different structural options, such as a going concern, stock purchase or asset purchase, each with their own tax implications, accounting treatment and legal complexities. In addition, the parties must consider how best to finance the transaction, and how future growth and stability will be handled.
Given the complexities and risks of undertaking a merger or acquisition, it is important to carefully consider all angles of the transaction. In doing so, the involved parties can ensure that the merger and acquisition is a success.
