The market for mergers and acquisitions is among the most dynamic and lucrative opportunities in corporate finance. While it is not a plan that every company could explore, for those that can execute it, M&A can create tremendous growth potential. M&A transactions can be complicated and require careful planning and execution in order to be successful. The M&A begins by evaluating the business. This can include high level discussions between sellers and buyers to assess how the companies can be strategically integrated and how their values align, and what potential synergies could exist.
Once the initial review is completed, the acquiring firm may make a preliminarily offer to the company that it is interested in. This could be done through an outright purchase or a tender. A company may purchase all shares of a company as an outright acquisition. This is done without the board directors or the management of the company that is being targeted.
A tender offer, on the other hand allows a publicly traded company to directly reach a publicly owned company’s shareholders and offer to buy their shares at a cost agreed by both parties. This is a type of a hostile acquisition and requires the approval of the shareholders of the targeted company before it is able to be finalized.
The main reason for a company’s pursuit of M&A is the potential to reap revenue and cost synergies by combining the two companies. If a car manufacturer purchases an established seat belt manufacturer it will gain economies of scale that reduce the cost per product as production grows. Companies also make use of M&A to gain access to technologies that would be costly or time consuming to develop internally.
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