The Merger and Acquisition Market

The merger and acquisition market is one of the most exciting and lucrative opportunities in corporate finance. M&A is not a strategy that every company should implement, but for those who can, it can provide immense growth potential. M&A transactions are usually complex and require an extensive plan of action and execution to be successful. The M&A process starts with an initial assessment of the company. This could involve high-level discussions between buyers and sellers to see how the companies can be strategically integrated, how their values align and what synergies could exist.

After the initial assessment, a preliminary offer can be made to the targeted company by the acquiring firm. This can be done either via an outright purchase, or a tender. A company can buy all shares of a company through an outright acquisition. The company being targeted is not notified by its board of directors and management and typically occurs for a higher price than what the shares were worth prior to being purchased.

A tender offer allows a publicly traded company to contact the shareholders of a publicly held company and offer to purchase their shares at a price that is agreed on by both parties. This is a hostile takeover and requires shareholders of the company to accept the transaction before it is completed.

The opportunity to realize cost and revenue synergies through the combination of two companies is the main reason for companies looking to M&A. If a car company buys a seat belt company it will benefit from economies of scale which will lower the cost per piece as production grows. Companies also use M&A to gain access to technology that is costly or time consuming to develop internally.

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