Mergers and acquisitions, or M&A, is a corporate process of acquiring new assets by buying taking over other business or by merging with them. Like any type of business activity, there are pros and cons for both mergers and acquisitions. Some of the pros include:
- The potential to add value to a company’s bottom line,
- The potential to increase a market share,
- and the potential to add assets to a company’s holdings.
While M&As have several pros, they also have several cons. Some of the cons include bad public reaction to hostile takeovers, resistance from the targeted company and the acquisition of additional liabilities and problems.
While mergers and acquisitions are usually talked about together, they are different processes. There are two main types of acquisitions, share purchase and an asset purchase. In a share purchase acquisition, a company will buy shares of a target company from its shareholders. By doing this it gains equity in the target company merging the two companies together. The second type of acquisition is an asset purchase. In an asset purchase, the buying company only selects specific assets to purchase. By doing this the buying company is able to select the assets that they want to acquire without having to take on the liabilities and problems of the target company.
Mergers are also interested in acquiring assets, however, they fund their purchases differently.
There are three basic types of mergers:
- All share deal
- Cash deals
- Hybrid deals
In all share deals, the merger is financed by exchanging shares in one company for shares in the other. In a cash deal, cash is used to purchase company stock. In hybrid deals both cash and shares are used to finance the merger deal. The type of funding deal that is used will be up to the companies involved and the liquidity of the buying company and the target company.