Mergers and Acquisitions
Mergers and Acquisitions are transactions that involve the combination of two or more organizations into one.Mergers and Acquisitions are also known as M and A (M&A) . A merger is a combination of two or more entities into a single entity. An acquisition is a process where the company acquires another entity for increasing its resources and technical know-how. In a typical merger scenario, the parties in the transaction will be two or more entities. However, in an acquisition scenario, the parties are the following:
- The Buyer – The buyer is also known as the acquiring company or the purchaser.
- The Seller – The seller is also known as the acquired company, or in case if the seller has a subsidiary, the subsidiary is being acquired by the buyer.
- Target – The Target company is the company that is being acquired by the buyer. The target is usually a subsidiary of the seller or maybe the seller also.
In a merger transaction, there is no buyer, seller, and target as both the parties in the transaction have some resources to offer. Mergers and acquisition services that happen domestically are known as domestic mergers, and if they occur internationally, they are known as cross border mergers. Cross borders mergers and acquisitions are complex and involve multiple parties in the process. These parties involve third-party consultants, such as investment bankers, lawyers, and risk consultants.
In India, mergers have been defined under the Companies Act 2013, which involves combining two or more companies to enjoy synergies and economies of scale and benefit. The previous Companies Act of 1956 did not define mergers and acquisitions.
Types of Mergers
Mergers can be divided into the following based on classification:
- Vertical Merger – This merger is a transaction where the parties are at different levels of the production cycle. Companies are in different businesses in this form of merger. A typical example of this merger is between a drinks company and a bottle manufacturing company. By combining their resources, the company which is formed can obtain different synergies.
- Horizontal Merger – A horizontal merger is when companies are present on the same line of production cycles. The products and services provided by the companies would be similar. For example, two law firms that merge would offer related activities to clients.
- Conglomerate Merger – In this form of transaction, the parties are in entirely different businesses and production cycles. There is no link between the products and services sold by the companies. A typical example of this is a car manufacturing organization merges with a software organization.
- Concentric Merger – In this form of transaction, the production processes may be different, but the end customer would be similar. A typical example of this would be a merger between a mobile phone company and a hardware company that provides touch screens for mobile phones.
- Co-Generic Merger – Co generic mergers are something like horizontal mergers. In Co-Generic Mergers, the parties are related to one another.
- Cash Merger – A cash merger is a transaction where the company’s promoters or shareholders receive cash consideration for the merger.
- Reverse Merger – Reverse merger is a transaction, where the entity mergers with another entity providing capital goods or raw materials.
Types of Acquisitions
- Share Sale – Share sale is a transaction in which the buyer exchanges shares to the seller for the target company. In a typical share sale transaction, all the shares of the target company are acquired. All the assets, resources, employees, and intellectual property rights are transferred to the buyer.
- Asset Sale – In an asset sale transaction, the buyer would only acquire a particular asset of the seller or the target company. This is beneficial to the buyer as a cherry-picking advantage is present with the buying company. If the buyer does not want any particular asset in the target, then the asset can be left as it is.
Mergers and Acquisitions Services
- Due to globalization in 2000, India has become a target for foreign companies. An increased amount of investment in India has developed it as a global M & A hub. Increase the use of digitization and development has improved the M & A climate in India.
- 2015 was considered a good year for mergers and acquisitions. This phase has extended from 2015 to 2019. Ever since the implementation of the Insolvency and Bankruptcy Code, more focus has been on companies’ distressed assets.
- On the global front, the M and A activity have contributed more than 3000 deals with a value of more than USD 300 billion. Some examples of top-notch mergers and acquisitions involve Walmart’s acquisition of Flipkart, which improved the latter company’s storage facilities.
- The year 2020 is considerably slow compared to the previous years due to the current situation. Hence Mergers and Acquisition services are crucial for organizations.