It is a concept that is taking boardrooms by storm and most companies go through this M&A phase because it is believed to serve, finance, and facilitate a growing company without having to create another business entity.
This process involves a company buying another company, therefore two companies joining to form one entity, etc. However, there is also the downside of mergers and acquisitions and usually the little men are affected by this sudden change. With M&A, people loose jobs, ad agencies get more work, while investment bankers get filthy rich.
Economies of scale: The science of corporate strategy is that post merger; the increased size benefits the CEO of the company. This is when the increased size of the merger entity gives greater benefit. As new CEO, he/she can enjoy the perks of expense accounts of both accounts.
Diversification: Larger companies can buy smaller companies to either raise or break it. In the process, current management style will also be rehashed so that the larger company grows. ‘For the greater good’ this method is ruthless but necessary.
Vertical integration: Instead of buying out a direct competitor, the company will buy their supplier or any company not in direct competition. There is company growth in the sense that the buying company grows while at the same time enjoying the smaller company’s resources.
Predatory: A particular company decides to buy out a direct competitor because it is consuming its market share. When the company finally acquires it, it creates radical changes inside and while forcing it to shut down in the process.
Share purchase: This is when the company buys enough shares from the market, thereby acquiring full control of the stake.
Asset purchase: This strategy involves the buyer assessing each and every asset of the target company and then buys them at a negotiated price. When the company makes a purchase, most of the assets will now be at a much lower price due to depreciation and unforeseen damages sustained.
For more information on mergers and acquisitions, let our ASAC consultants guide you from the basics to the most complex of corporate strategies. Contact your consultant today.
Share
