UNIT 31 Mergers and acquisitions

Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquireee or merging company (also termed a target) is or is not listed on public stock markets. An additional dimension or categorization consists of whether an acquisition is friendly or hostile.

A merger refers to the process whereby at least two companies combine to form one single company. Business firms make use of mergers and acquisitions for consolidation of markets as well as for gaining a competitive advantage in the industry.

Merger types can be broadly classified into the following five subheads as described below. They are Horizontal Merger, Conglomeration, Vertical Merger, Product-Extension Merger and Market-Extension Merger.

Horizontal Merger refers to the merger of two companies who are direct competitors of one another. They serve the same market and sell the same product.

Conglomeration refers to the merger of companies, which do not either sell any related products or cater to any related markets. Here, the two companies entering the merger process do not possess any common business ties.

Vertical Merger is effected either between a company and a customer or between a company and a supplier.

Product-Extension Merger is executed among companies, which sell different products of a related category. They also seek to serve a common market. This type of merger enables the new company to go in for a pooling in of their products so as to serve a common market, which was earlier fragmented among them.

Market-Extension Merger occurs between two companies that sell identical products in different markets. It basically expands the market base of the product.