The merger and acquisitions market is one of corporate finance’s most dynamic and lucrative markets. M&A is not a method that every company should implement but for those that can, it has tremendous potential for growth. M&A transactions are usually complicated and require an extensive plan of action and execution to be successful. The M&A starts with an initial assessment of the business. This could include discussions at a high level between vendors and buyers to determine how the companies can strategically fit together.
After the initial evaluation is completed, the acquiring firm may present a preliminarily offered offer to the firm it is targeting. This can be done through an outright acquisition or a tender. A direct acquisition involves the acquiring company purchasing all shares of the targeted company. This is done without the company’s board of directors and management and typically occurs for a higher price than what the shares were worth prior to the acquisition.
A tender offer is, however allows a publicly traded company to directly communicate with shareholders of a publicly held company and offer to buy their shares for a price agreed by both parties. This is a hostile acquisition that requires shareholders of the company to be in agreement with the deal before it can be completed.
The main reason for a company to seek M&A is the chance to realize revenue and cost synergies through the combination of the two companies. For example, if a car company buys a manufacturing company that makes seat belts, it can benefit from economies of scale and lower the cost per unit as production increases. Companies also use M&A to gain access to technology that would be costly or time consuming to develop internally.
