One of the most dynamic and significant processes in the world of high finance is mergers and acquisitions (M&A). These transactions can run into the hundreds of millions, if not billions, of dollars. In fact, investment banks have entire departments dedicated to establishing strategies and guidelines for bringing together two companies. Let's take a look then at these often headline grabbing corporate activities.
Thought the name M&A lumps them together, an acquisition and a merger are different things. An acquisition is a situation where one company takes over another. A merger is a case where two companies, generally of equal size, join together and combine their organizations and in so doing, create a brand new company. After a merger, old company stocks are no more and a new stock is issued.
The business philosophy behind any merger or acquisition is that the union of two companies will ultimately have a greater value than each one separately. The goal hoped to be achieved is that a synergistic effect takes hold. For example, cost savings can be achieved through staff reductions. Often, after a merger or acquisition, there is job overlap throughout the organization's various departments (i. E. Accounting.)
There are other ways to reach business synergy. This may include economics of scale. What does this mean? Well, the new, now bigger, company will most likely have greater purchasing power than the two old, smaller companies. This means the company can save on product parts, which means the cost of product production goes down. A business union may also be able to increase the efficiency of research and development, product visibility and market growth.
As it relates to business structures, it is important to remember that there are numerous types of mergers. One of the more common types is a horizontal merger. This occurs when two companies, in direct competition, that sell similar product lines into the same markets agree to come together.
Another form of combination is a vertical merger. This is accomplished when two companies producing two different product lines come together to offer a new type of finished product. An example of this would be an ice cream cone manufacturer hooking up with an ice cream producer to offer a new ice cream novelty.
The world of mergers and acquisitions is indeed vast and at times incredibly complex. They can be cooperative or hostile. They can involve massive cash purchases or stock swaps. In the end they can greatly enhance the financial viability of a company, or if mismanaged threaten the capability of corporate success.
Thought the name M&A lumps them together, an acquisition and a merger are different things. An acquisition is a situation where one company takes over another. A merger is a case where two companies, generally of equal size, join together and combine their organizations and in so doing, create a brand new company. After a merger, old company stocks are no more and a new stock is issued.
The business philosophy behind any merger or acquisition is that the union of two companies will ultimately have a greater value than each one separately. The goal hoped to be achieved is that a synergistic effect takes hold. For example, cost savings can be achieved through staff reductions. Often, after a merger or acquisition, there is job overlap throughout the organization's various departments (i. E. Accounting.)
There are other ways to reach business synergy. This may include economics of scale. What does this mean? Well, the new, now bigger, company will most likely have greater purchasing power than the two old, smaller companies. This means the company can save on product parts, which means the cost of product production goes down. A business union may also be able to increase the efficiency of research and development, product visibility and market growth.
As it relates to business structures, it is important to remember that there are numerous types of mergers. One of the more common types is a horizontal merger. This occurs when two companies, in direct competition, that sell similar product lines into the same markets agree to come together.
Another form of combination is a vertical merger. This is accomplished when two companies producing two different product lines come together to offer a new type of finished product. An example of this would be an ice cream cone manufacturer hooking up with an ice cream producer to offer a new ice cream novelty.
The world of mergers and acquisitions is indeed vast and at times incredibly complex. They can be cooperative or hostile. They can involve massive cash purchases or stock swaps. In the end they can greatly enhance the financial viability of a company, or if mismanaged threaten the capability of corporate success.
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