MERGER & ACQUISITIONS
While mergers and acquisitions are often used as synonyms, they do have a significant difference. Mergers mean a merger of two entities of similar scale to form a new corporate company. In the event of a merger, one or more of the current companies loses their name and ceases to exist, and the combined business assets and liabilities of another corporation or new company club are included in its financial statement. Whereas in the case of a takeover, no entity closes in transactions. Rather, the buying company obtains a controlling stake into the selling company. However, all entities maintain the same legal entity. The purchasing company gets ownership of the acquired company by buying controlling shares and then the company continues with its changed management.
Frequently Asked Questions
The term mergers and acquisitions ( M&A) broadly refers to the process of merging one business with another. One corporation buys the other outright in a merger. A merger is the merging of two entities, which then form a single legal entity under one corporate name banner.
The objectives that lure the entities to deal with the mergers and acquisitions transactions are as follows:
- To achieve optimum size for the enterprise or to use unused capacity.
- To increase market share.
- To supervise the competition.
- To save money and reduce taxes which are avoidable.
- Mobilisation and the use of idle funds to grow business.
- Fusions of industrial entities with trading entities, acquisitions or exports to improve the cash flow and other benefits.
- Acquiring shell companies that have all the licenses and other resources but the promoters do not want to pursue the project.
- Merger type.
A merger takes place when two separate entities combine forces to form a new, joint organization. In the meantime, one transaction applies to one company being taken over by another. In an effort to generate shareholder value, mergers and acquisitions can be undertaken to extend the scope of a corporation or to acquire market share.
The three main types of mergers are horizontal mergers which raise market share, a vertical merger that leverage formed synergies, and concentrated mergers that broaden the product line.
An acquisition is when most or all of the shares of another company are acquired by one corporation to obtain ownership of that business. Buying more than 50 percent of the stock and other assets of a target business enables the acquirer to make decisions about the newly purchased assets without the consent of the shareholders of the company.
Mergers and acquisitions for both companies involved in the transaction represent growth. It will also mean more financial strength, as the revenue generated by pooling both companies' incomes.
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