M&A case study
Mergers and Acquisitions
“Mergers and Acquisitions” or “M&A” is a general business term, which refers to transactions that result in the consolidation of companies. A merger is a combination of two companies to form a new company, whilst an acquisition occurs when one company purchases another, therefore does not form a new company. By its nature, a merger suggests the combination of two businesses under a mutual accord. The decision to merge is made by the management / board of each company, although theoretically shareholders could allow a merger to be executed against the will of management. In the case of listed companies, this will usually entail one group of shareholders accepting an issuance of shares in one company for the surrender of their shares in the ‘merged’ entity. A merger will typically involve a combination of the resources of the two entities, and a combination of processes throughout all or relevant parts of the two organizations including management in most cases.
On the other hand, an acquisition involves one entity buying another – in the case of a listed company this would involve an acquisition of the outstanding shares of the acquired company, usually paid in cash or with shares. The important differentiator between a merger and an acquisition is that the acquisition requires only an agreement between the acquiring company and the shareholders of the acquired company – the management and board of the acquired company need not agree. A takeover in which the target company’s board does not support the transaction is commonly known as a ‘hostile takeover’.
Business combinations are typically classified under three types – horizontal, vertical and conglomerate. Co-generic mergers also exist but are less common. A horizontal integration occurs between two (or more) companies that are competitors in the same industry in hopes of creating various synergies. Combining the operations and resources of two substantial companies can
“Mergers and Acquisitions” or “M&A” is a general business term, which refers to transactions that result in the consolidation of companies. A merger is a combination of two companies to form a new company, whilst an acquisition occurs when one company purchases another, therefore does not form a new company. By its nature, a merger suggests the combination of two businesses under a mutual accord. The decision to merge is made by the management / board of each company, although theoretically shareholders could allow a merger to be executed against the will of management. In the case of listed companies, this will usually entail one group of shareholders accepting an issuance of shares in one company for the surrender of their shares in the ‘merged’ entity. A merger will typically involve a combination of the resources of the two entities, and a combination of processes throughout all or relevant parts of the two organizations including management in most cases.
On the other hand, an acquisition involves one entity buying another – in the case of a listed company this would involve an acquisition of the outstanding shares of the acquired company, usually paid in cash or with shares. The important differentiator between a merger and an acquisition is that the acquisition requires only an agreement between the acquiring company and the shareholders of the acquired company – the management and board of the acquired company need not agree. A takeover in which the target company’s board does not support the transaction is commonly known as a ‘hostile takeover’.
Business combinations are typically classified under three types – horizontal, vertical and conglomerate. Co-generic mergers also exist but are less common. A horizontal integration occurs between two (or more) companies that are competitors in the same industry in hopes of creating various synergies. Combining the operations and resources of two substantial companies can