Mergers & Acquisitions

Mergers & Acquisitions, commonly abbreviated to M&A, refers to the consolidation of companies or assets through financial transactions including merging companies, acquiring a company, taking over companies, consolidations or making tender offers.

Subtle differences...

Whilst the two terms are commonly used together to describe the same transaction, they do in fact have slightly different meanings

Merger

A merger occurs when two companies combine their assets to form a new entity, which typically comes with a new name and alteration of the ownership. It is a process founded on mutual agreement and the aim of it all is to create synergies and increase the new company's competitiveness by utilising the existing strengths of both prior companies.

Acquisitions

An acquisition occurs when one company purchases the assets or stocks of another company and gains control of that company. This can either be undertaken in a friendly or hostile manner. This depends on whether the target company has consented to the acquisition or not, in which case it is a takeover. The overarching aim being for the acquiring company to gain an advantage in the market through increasing market share or acquiring new resources and technologies.

Types of M&As

As mentioned above, there are various types of transactions that fall under the term M&A. Below are a few examples

Merger

Two companies coming together and agreeing to combine assets. Usually agreed upon by the companies' boards of directors and the approval of shareholders

Acquisitions

Acquiring company controls most of the assets of the target company

Consolidation

Combination of two or more companies, (usually of equal size), to become a new single entity. A new single entity created through transformative process with different corporate structure. Different to merger, as a new company is created rather than one surviving company.

Tender offer

Acquiring company makes offer to shareholders of company to purchase outstanding stock at a given price

Relationship

There are more specific types of M&A based upon the relationship between the buyer and seller

Horizontal

Involves two companies working in the same market and business

Vertical

Target company is in a different position in the supply chain

Conglomerate

Involves two companies that are in unrelated industries

Congeneric

Involves two companies that have the same customers but sell different products or services

What does an M&A professional do?

Finding a deal

M&A professionals often begin by identifying potential deal opportunities. This involves researching industry trends, monitoring news and building relationships with potential target companies.

Valuation

They use financial modelling and valuation metrics to calculate the market value of the target company. The methods they use are discussed on the Valuation page.

Structure the deal

M&A bankers assist in structuring the deal, which involves determining the buy price, payment terms, and negotiating the legal and contractual aspects of the transaction.

Documentation

They also have to work with the legal teams to ensure all agreements are in compliance with relevant regulations. The work would involve legal documents, such as letters of intent, acquisition agreements, and disclosure schedules.

Working with clients

They have to work closely with their clients seeking to engage in M&A transactions and have to understand their situation and goals.

Financial Analysis

Conducting detailed financial analysis, including pro forma financial statements, to understand how the combined entity would perform post-transaction. This is important as it aids in the decision-making process.

Negotiation

Negotiating the terms of the transaction with the target company, including the price, financing, and any post-transaction arrangements.

Post-deal integration

After the deal is completed, M&A professionals can also assist in the post-merger integration process, ensuring that the two companies combine their operations efficiently and effectively.

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