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Merger and Acquisition – Definition and Overview

In Acquiry, acquisitions and mergers are transactions where the ownership of certain company, other enterprises, or their respective operating units are merged or acquired. In this transaction, two or more owners of an enterprise combine their ownership shares to form a new corporation. The new corporation is then able to market its products and/or services to customers. To acquire certain other companies, enterprises can merge with similar enterprises as a step toward establishing a dominant player in their respective markets.

Difference Between Mergers and Acquisitions Explained in Detail

Acquisition refers to the acquisition of another firm or corporation. There can be many kinds of acquisition: a takeover bid, an offer made to acquire another firm, the purchasing of another company, an investment in another company, etc. Mergers and acquisitions can also refer to the combination of two or more businesses. For instance, a purchaser of a pharmaceutical firm can acquire the shares of another pharmaceutical firm in order to operate it as a standalone company.

The main types of mergers and acquisitions include leveraged buyouts, in which buyouts are made with borrowed funds, acquisitions of businesses, and mergers and dividend pay. Leveraged buyouts are the most common type of acquisition, especially when the target firms have weak financial structure. For instance, some companies sell a portion of their stake in a company to raise money for expansion. However, in order to raise money for expansion, a leveraged buyout requires dilution of the owners’ equity.

Acquisitions require buying a controlling interest in the target company. Sometimes, the target company itself will make an offer for acquisition; sometimes the target company will acquire a firm owned by the acquiring firm in an off-the-block transaction. When an acquisition is made, the new owning firm is required to comply with the policies and procedures laid down by the Board of Directors of the target company, including the submission of its audited financial statements.

There are two types of targets in mergers and acquisitions: strategic and financial. A strategic acquisition involves a company investing in an undervalued or growth-oriented business. Financial acquisitions require acquiring a profitable business that has sufficient cash to perform the requisite operations. Most companies make acquisitions to implement cost saving measures or enhance the profitability of operations. Many companies also make acquisitions to diversify their portfolios to capture new market opportunities.

Vertical mergers and acquisitions generally occur between two companies in different vertical industries. In a vertical merger, one company takes over the operations of another company in a particular industry, usually with significant synergies. When vertical mergers and acquisitions take place, management looks for acquisition candidates that will complement the operation of the acquired firm.