Best Merger and Acquisition
A merger and acquisition (M&A) is a large part of the corporate world of finance. Investment bankers in Wall Street deal with M&A transactions everyday. Essentially, these transactions bring companies together in order to create larger businesses.
Some deals can be worth a million dollars, others even billions. We hear so much about mergers and acquisitions because they happen all the time. In fact, if you read the business section of a newspaper right now, then chances are you will see one headline announcing an M&A.
Understanding Mergers and Acquisitions
The main reason why a company buys another is to make shareholder value that is higher than the sum of the two companies. After all, when two companies become one, they become more valuable than if they were two separate entities.
Such reasoning becomes even more alluring to companies during tough economic times. The stronger and bigger companies will buy others so they can become a more cost-efficient and competitive business. They come together so they can gain a bigger market share or become more efficient.
And naturally, the smaller and weaker companies agree to be purchased because they can no longer continue doing business on their own.
The Difference Between Mergers and Acquisitions
For most people, mergers and acquisitions go hand in hand. In fact, they are often considered synonymous. However, they do mean different things. Let’s explain.
When company ABC takes over company XYZ, this transaction is referred to as an acquisition. From a legal standpoint, company XYZ ceases to exist because company ABC swallowed the business, though the buyer’s stock is still being traded.
A merger, on the other hand, occurs when two companies agree to form a single company. So, if company ABC and company XYZ decides to form company 123, then the transaction is a merger. They are still equals so to speak. Their individual stocks will no longer be traded but instead they will issue a new company stock.
But in today’s business world, mergers of equals are not very common. What’s more prevalent is that one company buys out another business and will simply allow them to declare that it was a merger even if it was theoretically an acquisition. They do this because a buy out is often thought of as a negative thing and will cause an uproar among shareholders, employees, etc.
Most mergers and acquisitions involve big money and key players in the industry. For startups, you may want to consider business franchises such as a Chick-fil-a franchise. They’re a family owned fast food business and specializes in serving chicken sandwiches. They will require interested parties to pay an initial franchise commitment amounting to $5,000 and your application will still be evaluated to determine if you’re a suitable business partner.