Merger and acquisition is the process by which the ownership of the business organization and/or its subsidiaries are transferred or combined. Mergers and acquisitions are defined as consolidation of companies. Differentiating the word “Mergers” and “Acquisitions”, In the term of Merger, one or more companies losses their existence and other company survives, while Acquisitions is the process of acquiring control by one company over another company or entity. Mergers and acquisitions is one of the major aspects of corporate finance world. The reasoning behind Mergers and acquisitions generally given is that two separate companies together create more value compared to being on an individual stand. “purchasing common shares”, “Purchasing assets”, “exchanging shares for shares”, “exchange of shares for assets”, are the ways of Mergers & Acquisitions. The Companies keep evaluating different opportunities with the objective of wealth maximization and to make the companies more profitable, through the route of merger or acquisition.
Merger/Amalgamation – There is two types of merger, MERGER BY ABSORPTION where one company exists and the other/s losses their entity; and other is MERGER BY CONSOLIDATION where both the companies seized to exist their entity and a new company is formed. Generally merger takes place when two or more companies are running same type of business.
There are different types of the merger from the perceptions of business organizations. But from an economist point of view thus, based on the relationship between the two merging companies, the mergers are classified as
- Horizontal merger – It is between the companies which are in direct competition as they sell the same type of product or services to the customers, this results in the consolidation of firms which are direct rivals. For example companies like Airtel and Jio, Maruti Suzuki and Hyundai etc.
- Vertical merger – This type of merger happens between the customer and company or a supplier and company, this merger of the firms that have actual or potential buyer-seller relationships. For example the Bendix and Ford.
- Conglomerate merger – This merger happens between two companies which do not share a common business or sell common product or service in the market or have no common relationship of any kind. The consolidated firms may sell related products or share marketing and distribution channels or production processes.
Acquisition – Acquisition refers an act of acquiring control by one company over another company or entity. Here control over major stake of ‘acquired company’ is taken by ‘acquiring company’. Here both the companies exists and no one losses their entity, neither any new company is formed. There must be control over 51% or more, in acquisition. It may be taking over control over 100% of another company.
Merger, acquisition and takeover can be of two types, by HOSTILE TAKEOVER or by FRIENDLY TAKEOVER. In hostile takeover, the board of directors disapproves takeover, whereas in friendly takeover board of directors approves takeover.
There are different scenarios when merger or acquisition of companies take place are need assess to other companies distribution channels, to increase customer base or market value and to get brand name, goodwill, new technology etc. of other company.
Sometimes merger or acquisition is done for restructuring and is also called as CORPORATE RESTRUCTURING. The restructuring is done for better management, to face financial situation and market competition, and to make the companies more profitable. This is done with the help of expert advocates.
There are many different reasons and circumstances for every merger, as every merger is different and these circumstances impact the way the deal is dealt or approached, managed and executed. The success of mergers largely depends on how well the deal makers can integrate the two companies and maintain day-to-day operations as well. Every deal is different and has its own turnouts which are influenced by various extraneous factors which can be the human capital component and the leadership. Most of it is dependent on the leadership of the company and its ability to retain people who are important for the company’s success. Both the companies should be clear minded regarding the motive of such acquisition, it is very important.
All the profits, intellectual property, and customer base are peripheral or central to the acquiring company, whereas the motive will determine the risk profile of such M&A. Due diligence is conducted so as to gauze the risks involved before the onset of any deal generally, the quantum of assets and liabilities that are acquired.
A synergy value is created by merger of two companies. It can be seen either through the higher revenues, lowering of expenses or lowering of overall cost of capital. online legal consulting
Restructuring the Company;
The Company, when facing financial pressures or crisis, modify the financial and operational aspects of the company, this action is called restructuring the Company. By this action, the company modifies its debts, operations or structure of a company to limiting financial harm and improving the business. By internal Restructuring, the company changes its operations or ownership to enable the business to become more integrated and profitable.
Clearly saying, Merger/Amalgamation, Acquisition & Restructuring the Company is done for betterment and making the business more profitable.