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Mergers and acquisitions (takeover) (abbreviated M&A) are both an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary.
When two companies join to form one new firm, it can be: voluntary, also known as a merger forced, when it is known as a takeover
Types of Mergers
Mergers appear in three forms, based on the competitive relationships between the merging parties. Horizontal merger -> one firm acquires another firm that produces and sells an identical or similar product in the same geographic area and thereby eliminates competition between the two firms. Vertical Merger ->one firm acquires either a customer or a supplier. Conglomerate mergers ->encompass all other acquisitions, including pure conglomerate transactions where the merging parties have no evident relationship
Types of takeovers
Friendly takeovers: is an acquisition which is approved by the management.. In
an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders
public company.A reverse take-over is an acquisition or acquisitions in a twelvemonth period which for an AIM company would:
exceed 100% in any of the class tests; result in a fundamental change in its business, board or voting control; in the case of an investing company, depart substantially from the investing strategy stated in its admission document;
Advantages
- Economies of scale - Greater Efficiency - Ability to speedily acquire resources and competencies not held in house. - It builds market presence - Protect an industry from closing - It overcomes market entry barrier -Diversifaction
Disadvantages
-The activities of new and old
organizations may be difficult to integrate -The acquirer may pay high cost - Create employee dissatisfaction -Too much managerial focus on acquisitions can be detrimental to internal development. - conflicting business strategies
The future
Although a number of factors influence mergers and acquisitions, the market is the primary force that drives them. The rash of mergers in the telecommunications industry accounted for many of these mergers, but companies in other industries were involved as well. Another factor in the rise in mergers was a booming economy, which grew at unprecedented levels : many companies were forced to downsize, and the number of major mergers decreased accordingly. Improvements in the economy, as well as potential legislative changes, could very well spark another wave of mergers.