The Merger and Acquisition Market
The merger and acquisition (M&A) market is an essential part of the growth strategy for many public companies. Large public companies that have surplus cash frequently look for opportunities to acquire other companies in order to achieve organic growth. For the most part, M&A involves two companies within the same industry and at the same level of the supply chain, coming together to create value.
Generally, a company can buy another company for stock, cash or the assumption of debt. The investment bank involved in the sale may sometimes offer financing to the buyer’s firm too (known as staple financing).
M&A typically starts with a thorough analysis of the target company, including financial reports as well as business and management plans, as well as other pertinent data. The process is known as valuation. It can be performed by the acquiring company or outside consultants. The company who performs the valuation should consider more than just financial information. They also have to take into consideration other factors, such as the fit with culture and other aspects that will affect the success of the deal.
The most popular reason to conduct a merger or acquisition is to boost growth. The size of the business increases its bargaining power and reduces costs. Diversification can also increase a company’s capacity to weather downturns within the economy or to provide steady income. Some companies also acquire competitors to strengthen their position in the market and remove future threats. This is referred to as defensive M&A.