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.
Acquisition (also known as a takeover)
Purpose of Mergers and Acquisition
The main reason for M&A is faster growth and better productivity but there could be other reasons like
- Enhance productivity cycle by enhancing supplies with adequate supply of raw material.
- Elimination of competition
- 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.