The market for mergers and acquisitions (M&A) is a major part of many public companies growth strategies. Large public companies that have excess funds are often seeking opportunities to acquire companies for organic expansion. M&A is usually a merger of two companies from the same sector, at similar levels of the supply chain.
Generally, a company can purchase another for either cash, stock or the assumption of debt. Sometimes the investment bank involved in the sale of a company may also provide financing to the buyer company too (known as staple financing).
M&A typically begins with a thorough evaluation of the target company, including financial reports, management and business plans, as well as other pertinent information. This process, known as valuation, may be carried out by the acquiring company or by consultants. The company that conducts the valuation must consider more than just financial information. They also have to consider other aspects, such as the cultural fit and other aspects, which can impact the success of the deal.
The most common reason for a company to conduct a merger or acquisition is to boost growth. Adding to the size of an organization gives it economies of scale, which decreases operating costs and improves bargaining power with suppliers of raw materials, technology or services. Diversification is another factor to increase a company’s capacity to weather downturns in economy or to generate steady income. In addition, some companies Read More Here purchase competitors to increase their standing in the market and eliminate future threats. This is known as defensive M&A.