In business circles, terms that indicate important aspects of business, which are not known to everyone, are often mentioned. An indicator of the success of large companies is the mergers and acquisitions process. Regardless of whether you do this on an international or national level, your company will have numerous benefits.
In the description of this business strategy is the consolidation of the company or assets. There are several different methods of merging companies. We will reveal to you what these methods are, as well as many other important information that you need to know. It will come in handy one day if you want to expand your business.
1. Difference between Mergers and Acquisitions
There are different types of financial transactions during company consolidations. One example of such activity is mergers and acquisitions. The two companies should subsequently form a legal entity. Mergers and acquisition are two terms that are often used interchangeably. So, if you take over another company, you become the owner. This kind of business strategy is called acquisition. Mergers are a different way of uniting two companies. In this case, you will be looking for a company that is the same or approximately the size of your company, because you have to work as one organization. How do I know that my company and another company have a similar value? There is a way to value any company.
You need to find a company in your industry and study them using metrics. Therefore, the acquisition represents the joining of two companies that thrive as one entity. This type of agreement is created after the directors have agreed that the merger is in the best interests of both parties. However, there is also a hostile takeover of the company. Such a business move is also called an acquisition. The difference between a friendly and a hostile acquisition is in the way of communication with the board of directors, employees and shareholders. However one paragraph is certainly not enough to explain everything, so if you want to learn in-depth about this topic you should get a certificate. Have we caught your attention? If you want to find out more about IMAA certification provided by mergers and acquisitions association we recommend you visit https://imaa-institute.org/.
2. Types of mergers
Conglomerate merger, horizontal merger, and vertical merger are just some of the types of business combinations of merging two companies. The choice of this method depends on various factors such as the economic function. Experts from institute for mergers acquisitions and alliances gave us example, horizontal acquisition is one of the most famous methods used by the biggest players in the business world. It is realized by two companies providing the same products and services. In this way, they achieve a better competitive position than they had when they worked separately. An example of such business is the cooperation between Exxon and Mobil. A variation of this method is the market expansion purchase, which is used when companies are separated in different geographic locations.
This is done for the purpose of expanding the market, and is most often used in the retail food industry or in retail banking. Unlike a horizontal acquisition, a vertical acquisition represents the purchase of a company that is at a different level of value. There is another interesting method and it is used as a twist on horizontal acquisition. Instead of producing the same products or providing the same services, companies do the opposite. However, they are located in the same market and thus synergy is created.
We must not forget about the SPAC or reverse takeover. In the last few years, this method has reached a sudden popularity. For example, you own a public company and want to avoid the expensive costs of the stock market. What you will do is take the company private. The result of this business move is greater control, as the private company will be publicly listed. According to the IMAA institute you can opt for Acqui-hire also. Many companies see this as the only way to continue to achieve success in their industry. This is the form of acquisition most often seen in the technology sector.
3. Period between announcement date and close
The process of concluding a contract can take several weeks or several months. Part of the process is the common terms of the agreement between the buyer and the seller, and these also have an impact on the gap between the announcement date and the closing date. For example, it is possible that unforeseen circumstances may occur during the process. One of the conditions is the termination fee. The condition was created to protect the customer’s time, resources and costs invested in the process. However, there is also a reverse termination where the customer has to pay a fee if they have abandoned the deal. That is why there is a reverse termination fee as another requirement. It often happens that the buyer runs out of financial resources in the meantime, which is why he cannot complete the started process.
The customer can protect himself in other ways. For example, it is a material adverse change. This condition allows him to terminate the process if an adverse change in business occurs. Companies use their shares as currency in some circumstances. Now you’re probably wondering how that’s possible, since stocks are volatile. Therefore, a fixed ratio is determined until the closing date regardless of the stock movement. We must not forget about the possibility of reverse capital correction. Like stocks, equity can change. In order to protect capital, the purchase price is subject to correction if changes occur between announcement and closing.
4. Pros of M&A
The biggest advantage of m&a association is the great economic gain. A prerequisite for such an outcome is equally strong, productive and efficient companies that work as a single entity. With more capital, you will also get better bargaining power in the market, lower costs and more. Two companies will always have more economic power than one. It also implies a larger market share, i.e. influence on customers and competitors. If you want to stand out in the market, you will probably want to hire the best employees. Remember that the greatest talents only work for great companies. So consider M&A if you want to have better access to talent as well as resources.
If you work with a company that is connected to the best suppliers and critical materials, you will improve access to resources. Too
The result of Mergers and Acquisitions are profitable facilities and continuous operations. Unfortunately, many small businesses fail due to disaster. They simply don’t have enough resources to recover, which is why they eventually shut down. Fortunately, there is an IMAA mergers and acquisitions that will eliminate the risk of failure.