The market for mergers and acquisitions is among corporate finance’s most exciting and lucrative markets. M&A is not a strategy that every company can adopt however for those that can, it could provide tremendous potential for growth. M&A transactions can be complicated and require careful planning and execution in order to be successful. The M&A process begins with a preliminary evaluation of the company. This could include discussions at a high level between vendors and buyers to determine how the find more companies can strategically work together.
Once the initial evaluation has been completed, the acquiring firm can make a preliminary offer to the company it wants to acquire. Based on the circumstances, this can be done either through an outright acquisition or tender offer. A company can buy all the shares of a company as an outright acquisition. The company being targeted is not notified by its board of directors and management. It is usually done for a premium over what the shares were worth prior to their acquisition.
A tender offer permits companies that are publicly traded to reach out to shareholders of a privately held company and offer to buy their shares at a cost that is agreed on by both parties. This is a form of a hostile takeover and requires the approval by the shareholders of the company being targeted before it is able to be finalized.
One of the main reasons for a company to seek M&A is the possibility to gain revenue and cost synergies through the combination of the two companies. For example, if a car company buys a company that manufactures seat belts it can achieve economies of scale and lower the cost per unit as production grows. Companies also use M&A to gain access to technologies that would be expensive or time consuming to develop internally.
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