IFFM Blog #8: International Mergers and Acquisitions: Concepts, Motives, Financing, Process & Evidence

Merger & Acquisition (M&A) is a combination of two entities or concepts into one common interest. (ft.com/lexicon, n.d.) In theory, the main motive of any M&A is to defend or further improve the dominant company’s strength and profitability by increasing and maximising shareholder wealth. (Peavler, 2018) 

There is however a difference between mergers and acquisitions. Mergers occur when two or more entities join in one entity to work towards a singular or common goal. (Ness, 2014) There are five common types of mergers. Conglomerate merger where two unrelated entities merge to combine and share their assets or reduce business risk. Horizontal merger is where both entities are in the same industry, merging to reduce operating costs and to capture a great market share. Market extension merger, similar to horizontal merger where two entities of the same industry but merging separate markets to capture a bigger client base. Product extension merger is where both entities are in the same industry but produces different products merge and group their products to gain a larger market. And lastly, vertical merger where two companies having different products but part of the same supply chain merge to improve efficiency.

In regards to acquisitions, it mainly consist of a dominant entity that takes over another by buying its assets and/or shares. There are also five common types of acquisitions. Value creation where the dominant entity purchases another entity to achieve great performance and profits for its stakeholders. Consolidating where the dominant entity acquires another to eliminate competition in a potentially saturated market. Accelerating is where the dominate entity acquires a smaller company which has potential resources to quicken their market access through its products. Resource acquiring is where an entity acquires another entity for its technology, intellectual property, resources, skills, or market positioning, which is more cost effective as compared to developing it on their own. Lastly, speculating is when the dominant entity buys a small entity with a fresh product to cash in on the potential growth.

References:

Peavler, R. (2018). Beginner's Guide to Mergers and Acquisitions. [online] The Balance. Available at: https://www.thebalance.com/why-do-companies-merge-mergers-and-acquisitions-explained-392847 [Accessed 31 Jan. 2018].

Lexicon.ft.com. (n.d.). Mergers And Acquisitions Definition from Financial Times Lexicon. [online] Available at: http://lexicon.ft.com/Term?term=mergers-and-acquisitions [Accessed 31 Jan. 2018].

Ness, A. (2014). An Overview of the Different Types of Mergers and Acquisitions - Johnsons Corporate. [online] Johnsons Corporate. Available at: http://johnsonscorporate.com.au/an-overview-of-the-different-types-of-mergers-and-acquisitions/ [Accessed 31 Jan. 2018].