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Shabbir is an online entrepreneur in the field of Internet Marketing and is devoted to optimization and usability of his websites. Apart from doing trading he blogs about Internet Marketing Tips @imtips.co

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Merger and Acquisition

December 25th, 2008 • Related • Filed Under

We have been learning about the companies coming together to from another company and companies taking over the existing companies to expand their business. With recession taking toll on many businesses, they are feeling insecurity, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. So lets first Define the terms.

Merger

In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal.

Acquisition (also known as a takeover)

An acquisition is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target’s board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one.

Purpose of Mergers and Acquisition

The main reason for M&A is faster growth and better productivity but there could be other reasons like

  1. Enhance productivity cycle by enhancing supplies with adequate supply of raw material.
  2. Elimination of competition
  3. Moving into other areas of expertise.

Types of Mergers

  • Horizontal mergers take place where the two merging companies produce similar product in the same industry.
  • Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.
  • Congeneric mergers occur where two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship
  • Conglomerate mergers take place when the two firms operate in different industries.

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