Mergers and Acquisitions Explained

Mergers and acquisitions (M&As) are business transactions which change the ownership structure of the company. This is often done through a purchase. This process can help companies expand their customer base, market share and products offered. It can also reduce costs for businesses by leveraging economies of scale and supply chain integration. Diversification is also possible through the acquisition of new markets or capabilities in the industry.

In a merger, companies with similar sizes join to create a new entity. In an acquisition, a larger company purchases a smaller one and incorporates it into its operations. CVS Health purchased the healthcare giant Aetna for $70 billion in 2017. The combination of the two companies led to the company that merged insurance services with pharmacy services and offered a more seamless experience to customers.

M&A https://business-latam.com/data-room-para-fusiones-y-adquisiciones/ can be used to increase revenue by increasing a company’s share of the market, which in turn can increase profits. It is also an effective way to get rid of the competition, since companies might acquire smaller competitors that are struggling, and then close them down. Facebook’s dominance in the field of social media has been made possible by the acquisition of a number of companies that were designed to eliminate their competitors and ensure it continued growth.

Another reason for M&A is to gain a technological advantage by purchasing one of the competitors. Google, for example has acquired a number of companies that provided search engine technology. It then integrated this into its platform. In other cases companies make use of M&A to access certain raw materials or production capabilities. For instance, a food manufacturer could acquire a bakery company to gain access to its ingredients, and thus improve the quality of its products.

Synergies are commonly used to describe the cost savings M&A can bring. They can be in the form of lower costs due to economies of scale, less operating expenses by efficient processes, or lower employee salaries and benefit packages because of a decrease in duplication. These are difficult to quantify, but can be significant. For example the buying power of the two businesses can be utilized to negotiate discounts with suppliers or gain economies of scale when it comes to shipping and storage.

M&A can also be a way to gain entry into a market faster than organic growth. This can be achieved by buying a competitor or a smaller company that has the experience and skills to service this customer. Microsoft’s purchase in 2013 of Nokia, a mobile phone maker is a good example.

M&A may fail, however there are many ways for a deal to be a disaster. For instance, a company may overlook damaging information or become overly eager to make an agreement. It may also underestimate the time it takes for the anticipated synergies to be realized. These issues could have a negative impact on the company’s growth prospects and the price of its stock. These issues are often resolved by M&A lawyers who are experienced in this field.