Mergers and Acquisitions (M&A) are business transactions that alter the structure of ownership of a company, often through purchase. This process can help companies expand their customer base, market share, and product offerings. It can also help businesses cut costs through economies of scale and supply chain integration and also provide diversification through the acquisition of new markets and capabilities for industry.
In a merger, companies of similar size merge into a new entity. In an acquisition, a larger corporation buys a smaller company and integrates it into their operations. For instance, the $70-billion acquisition of the health giant Aetna by CVS Health in 2017. The combination of these two businesses created a new company that integrated insurance and pharmacy services, and offered a more streamlined customer experience.
M&A can be used to boost revenue by increasing a firm’s market share, which in turn can increase profits. It is also an effective way to eliminate competition, as companies could buy smaller competitors that are struggling and then shut them down. Facebook’s dominance in the social media industry was achieved through a series acquisitions that were specifically designed to eliminate competitors and ensure its continued growth.
Another reason for M&A is to gain technological advantage by buying one of the competitors. Google for instance has acquired a number of companies that provide search engine technology. Then, it integrated the technology into its platform. In other instances, companies use M&A to access certain raw materials or production capabilities. A food company, for example might buy a bakery to gain access ingredients and improve the quality of its products.
Synergies are typically used to describe the cost savings that M&A can bring. They can come in the form of lower costs resulting from economies of scale, decreased operating expenses due to efficiency-driven processes or reduced employee compensation and benefits due to a reduction in duplication. These aren’t easy to quantify but can be significant. For example the purchasing power of two businesses can be used to negotiate discounts with suppliers or gain economies of scale in storage and shipping.
M&A can also be a way to gain entry into a market faster than organic growth. This can be accomplished by purchasing a competitor or a smaller business with the knowledge and experience to provide this market. An example of this is the purchase of the mobile phone maker Nokia by Microsoft in 2013.
M&A may fail, however it is because there are a variety of ways that a deal could fail. For example, a company might miss out on damaging information or become overly eager to sign an acquisition. It may also underestimate the time it takes for the expected synergies to https://business-latam.com/ take effect. These problems could have a negative impact on the company’s stock price and growth prospects. In most cases these issues can be resolved with careful analysis and a careful negotiation by experienced M&A attorneys.