Mergers and Acquisitions

Mergers and acquisitions are major events of the corporate sector. The process of mergers and acquisitions plays a crucial role in influencing the trends of the global financial market. In the process, two or more separate companies are united and a major company is formed.
These corporate deals may cost billions of dollars. Sometimes the investment banks are related to the process of merger and acquisitions.

Merger
Merger is used by the corporate sector with the purpose of increasing the profits of the firms. These profits are actually calculated for the long terms. To manage the risks involved in the process, stock swaps are generally used in the process.
Normally these are done for business purpose but at the same time, there may be any political or other interests behind the mergers. Once the merger is done, the new company generally gets a new name and branding.
Types of Mergers
The merger activities can be categorized in several types according to their characteristics.

Some of these types are as follows:
Congeneric mergers
Horizontal mergers
Conglomerate mergers
Vertical mergers
Dilutive mergers
Accretive mergers

The merger process needs a huge amount of money. This money is generated through several procedures. Firstly the entire deal can be concluded through hard cash.

But this huge amount of cash can create financial problems for the company. Again, there is also the option of taking a bank loan and concluding the deal successfully. At the same time, the company can also issue bonds to generate huge funds needed for the purpose. Another option of financing is the hybrid process where hard cash and the securities or bonds are used together.
Acquisition
In the corporate sector, when a company purchases another company, the activity is termed as acquiring. Acquiring or take over of a company may happen in a friendly environment or the deal can be against the will of the company that will be acquired. The negotiation process is followed for most of the acquisitions activities. But in certain cases big company may buy major part of the small company’s share from the market and in this way, acquires the company without the management’s concern. There is also another process of acquisition known as the reverse acquisition.

For further details, please check the following links:
Purposes of Mergers and Acquisitions
Mechanics of a Merger
Costs and Benefits of a Merger

 

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Last Updated on : 27th June 2013

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