Mergers and acquisitions (M&As) are business transactions that alter the ownership structure for the company. This is often done through a purchase. This helps companies increase their customer base, market share, and product offerings. It can also help reduce costs for companies through economies of size and integration of the supply chain. Diversification is also possible through the acquisition of new markets or capabilities for industry.
In a merger two companies of similar size merge to form Data Room Features a new entity. In an acquisition, a major business buys a smaller and integrates it into its operations. CVS Health purchased the healthcare giant Aetna for $70 billion in 2017. The merger of the two companies led to the company that merged pharmacy and insurance services and offered a streamlined experience for customers.
One of the main reasons for M&A is to increase profits by increasing a company’s market share, which will increase the company’s profits. It can also be an effective way to get rid of competition, as companies could buy smaller competitors that are struggling and then shut them down. Facebook’s dominance in the field of social media has been achieved through a series acquisitions that were designed to eliminate their competitors and ensure it continued growth.
Another reason to acquire a competitor is to gain technological advantages. For example, Google has acquired several companies that provided search engine technology and then integrated it into its own platform. In other cases companies make use of M&A to gain access to specific raw materials or production capabilities. For example, a food business might buy a bakery in order to gain access to its ingredients, and thus improve its quality of products.
The cost savings that can be realized through M&A are often referred to as synergies. These can come in the form of lower costs through economies of scale, reduced operating expenses through efficiency-driven processes, or lower employee salaries and benefits because of fewer duplications. These aren’t easy to quantify, but can be significant. For instance the buying power of the two companies can be utilized to negotiate discounts with suppliers or gain economies of scale when it comes to shipping and storage.
M&A can be used to enter the market faster than organic growth. This can be done by buying a competitor in that market, or by acquiring a smaller company with the necessary skills and experience to service the customer. Microsoft’s purchase of Nokia, a mobile phone manufacturer, is an example.
M&A deals can fail due to many reasons. A company could overlook harmful data, or be eager to conclude an agreement. It could be unable to predict how long it will take for anticipated synergies to be realized. These issues could have a negative impact on the stock price and prospects for growth. These issues are often solved by M&A lawyers with years of experience in the field.
