MERGERS AND TAKE OVERS

MERGERS AND TAKE OVERS

MERGER AND ACQUISITION DEFINED

When we use the term "merger", we are referring to the joining of two companies where one new company will continue to exist.

 The term "acquisition" refers to the purchase of assets by one company from another company. In an acquisition, both companies may continue to exist.

However, throughout this topic we will loosely refer to mergers and acquisitions ( M & A ) as a business transaction where one company acquires another company. The acquiring company (also referred to as the predator company) will remain in business and the acquired company (which we will sometimes call the Target Company) will be integrated into the acquiring company and thus, the acquired company ceases to exist after the merger. 

 TYPES OF MERGERS

Mergers can be categorized as follows:

Horizontal: 

Two firms are merged across similar products or services. Horizontal mergers are often used as a way for a company to increase its market share by merging with a competing company. For example, the merger between Total and ELF will allow both companies a larger share of the oil and gas market.

Vertical:  

 Two firms are merged along the value-chain, such as a manufacturer merging with a supplier. Vertical mergers are often used as a way to gain a competitive advantage within the marketplace. For example, a large manufacturer of pharmaceuticals, may merge with a large distributor of pharmaceuticals, in order to gain an advantage in distributing its products.

Conglomerate: 

Two firms in completely different industries merge, such as a gas pipeline company merging with a high technology company. Conglomerates are usually used as a way to smooth out wide fluctuations in earnings and provide more consistency in long-term growth. Typically, companies in mature industries with poor prospects for growth will seek to diversify their businesses through mergers and acquisitions.