The Intricacies of Mergers and Acquisitions

Mergers and Acquisitions are strategic tools that offer growth, expansion of markets, and competitive advantage. They can also bring risks and challenges. Managers and executives working in the M&A environment must understand the complexities associated with M&A.

M&As can bring a variety of benefits to the target and the acquiring companies. They can result in the ability to increase economies of scale, improved distribution and purchasing capabilities, accessing new material and nonmaterial resources, capabilities of the corporate as well as risk diversion, geographic expansion, and more.

The M&A process could require a lot of time, energy and even money. In the end, the businesses involved could be forced to forfeit other opportunities. Additionally, a merger or acquisition can result in a loss of scale for consumers since the combined market share might force them to pay more for goods and services.

An acquisition can be a hostile or friendly transaction. In a hostile transaction companies will pay an amount to the owners of the company they want to acquire above what they think the business is worth. The acquiring company then takes over the business it is buying, eliminating future competition and gaining a greater market share.

The acquiring company may also buy the assets of the target company and leave the target with nothing but cash (and perhaps some debt, if any). In this type transaction the acquiring company does not usually retain employees from the business it acquired. It may, however, hire some of its employees and maintain the name of the acquired company.