The Intricacies of Mergers and Acquisitions

Mergers and acquisitions are strategic tools which offer growth, expansion of markets, and competitive advantages. They can also bring challenges and risk. The intricacies of M&A must be understood by managers and executives as they navigate the M&A landscape.

M&As can bring a number of advantages to the target and the companies that are buying. They can result in greater economies of scale enhanced distribution and purchasing capabilities, accessing new materials and non-material resources, corporate capabilities, risk diversion, geographic expansion, and much more.

The M&A could require a lot of time and effort as well as money. The companies involved may have to let go of other opportunities. Furthermore the merger or acquisition could lead to diseconomies of size for consumers since the combined market share might force them to pay higher prices for goods and services.

An acquisition could be a friendly or hostile transaction. In hostile transactions the company pays an amount to the owners of the target company above what they believe the business is worth. The acquiring company then takes over the business of the target to eliminate competition in the future and gaining a larger market share.

The company buying the asset can buy the assets of the company that it is targeting, leaving the target with nothing but cash (and maybe some debt, if any). In this type of transaction the acquiring company usually does not retain its staff of the business it acquired. It can, however, hire certain employees and keep the name of the acquired business.

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