To put it simply mergers usually happen between two companies with similar size whereas acquisitions is where larger company acquires a smaller company.
Mergers & Acquisitions (M&A) is a process / transaction involving consolidating entities or assets which is mostly used either for restructuring or exploring growth opportunities whether it is for operational (financial) gain or other strategic objectives. Certainly M&A increases synergy; where hard synergies refer to costs savings, and soft synergies refer to revenue increases. Consulting firms in (eg: transaction advisory services) often provide services related to it to help companies transition. It is possible that M&A success cannot be gauge accurately due to conflict of interest i.e. increase consultant/intermediary’s sale.
Typical transactions under M&A are consolidation, tender offer, acquisition of assets and management acquisition.
Two popular M&A transactions are through:
- Acquisition of assets by acquiring company. In such proceedings, sale of assets are agreed from current shareholders as a result of bankruptcy where other companies bid for various assets of the bankrupt company, which is liquidated upon the final transfer of assets to the acquiring firms.
- Management acquisition, also known as a management-led buyout (MBO), a company’s executives purchase a controlling stake in another company, making it private. These former executives often partner with a financier, in an effort to help fund a transaction. Such M&A transactions are typically financed largely with debt, and the majority of shareholders must approve it. For example, in 2013, Dell Corporation announced that it was acquired by its chief executive manager, Michael Dell.
Structure of M&A
M&A activity that are common:
Conglomerate
Cross-border (International)
Valuation
When valuations aren’t performed well these result in acquisition premiums. Valuations can be affected by cyclical patterns of merger waves, they resemble patterns of stock market / economic cycle with no coincidence because merger market volume follows stock markets. Markets are driven by people and people are driven by emotions.