Now and then there is news highlighting how one multinational corporation acquired a small scale business or how a commercially weak organization or e-commerce site merged with the biggest competition in the market. But did it ever occur to you ‘what is this merger and acquisition’ that the business channels keep talking about?
Well let’s have a look at this corporate method of enhancing financial value of the brand:
What are mergers and acquisitions?
When a business under the prospect of creating more value to its name, agglomerates with another firm to form on business is called merging. An acquisition is when one company takes over another company. The objective of mergers and acquisition is same: to maximize corporate presence and shareholder wealth. A merger and acquisition can take place either by buying assets and common shares or exchange of shares for shares or shares for assets.
What are the possible reasons for M&A:
Increasing the market share and magnifying market access.
Improve company’s performance and accelerate growth.
Economies of scale.
Types of M&A:
HORIZONTAL MERGER :
When two firms operating in the same industry or are manufacturing the same products consolidate, that is horizontal merging. The goal behind this merging that happens majorly between the competitors is to escalate the business operation and make it more valuable, financially.
When two or more firms that are engaged in manufacturing the different parts of one device merge to create one specific finished product. Though they are not direct competitors, they synergize by combining production cost, enhancing efficiency, ensure better quality, etc.
With the main objective of only increasing the size of the corporations, two or more completely unrelated industries consolidate.
Since the technology keeps on evolving, corporations driven by technology are now seen acquiring technology, created by another company to enhance their production.
ACQUISITION OF ASSETS:
One company acquires the assets of another company like materials, instruments, facilities. The company whose assets are acquired is called the target company.
Advantages of M&A:
The primary goal of enhancing the net present value of an investment is achieved through M&A. With the shareholders of both the companies now involved, the cash flow maximizes, and the distribution of costs affects the overall returns.
With M&A, the business thus combined, the acquirer gets the technology of the acquired business., which gives it a competitive edge in the market. Other than that, the best resources of both the companies like their practices, skilled employees are now effectively utilized to steer the company towards the excellent benefit and massive growth.
There are a set of rules and regulations laid down under the Merger and Acquisitions branch of corporate law, which the organization is going through the procedure, has to follow. There is a specialized attorney to deal with the intricacies of the M&A laws.
The M&A attorneys understand the client’s’ objectives, help in identifying the potential legal issues, conduct due diligence, negotiate agreements, etc.
The proceeding of merger and acquisitions can be intimidating to deal with considering the complexity of the process and the laws to abide by. If you are an organization or a business thinking of merging with another business or acquiring it and are apprehensive about the approach, you can seek the help of experts from the best corporate firm in Israel, David Page Law. They can help you with evaluating your liquidity and financial assets, representation, and warranties, what should happen before and after the closing of the deal, etc.