The market for mergers and acquisitions is one of corporate finance’s most active and lucrative markets. M&A is not a method that every company should implement however for those that can, it can provide immense potential for growth. M&A transactions can be very complex and require careful planning and execution in order to be successful. The M&A starts by evaluating the business. This may include high-level discussions between buyers and sellers to see how the companies can be strategically integrated and what their values are aligned, and what potential synergies could be created.
After the initial assessment and a preliminary offer may be made to the target company by the acquirer. Depending on the situation the offer can be made either through an outright acquisition or a tender offer. A company can acquire all the shares of a company as an outright acquisition. The company being targeted is not notified by its board of directors and management and typically occurs for more than the shares were worth prior to being purchased.
A tender offer permits a publicly traded company to reach out to shareholders of a publicly-owned company and offer to buy their shares at a cost that is agreed on by both parties. This is a form of a hostile takeover that requires the approval of the shareholders of the targeted company before it can be finalized.
A primary motivation for a business to pursue M&A is the chance to gain revenue and cost synergies as a result of the merger of the two companies. If a car manufacturer purchases an established seat belt manufacturer it will gain economies of scale which will reduce the cost per item when production increases. M&A can also be used by companies to gain access to technologies that would be costly or time-consuming to develop on their own.
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