by The mergers and acquisitions or M&A have emerged as a key corporate strategy in the business domain. An increasing number of companies are engaging in M&A to expand their market presence, gain access to new resources and capabilities, as well as strengthen their competitive position.
Earlier, Anand Jayapalan had mentioned that mergers take place when two companies merge together to form one company. There can be many distinctive strategic motivations for mergers. Mergers can also be legally and financially structured in varied ways and even in combination with other deal types.
Here are a few common financial and legal structures for M&A:
- A reverse triangular merger in which the buyer tends to form a brand new subsidiary that merges with the target company. As a result, the target company survives the merger and becomes a wholly owned subsidiary of the buyer. This is among the most common structures for corporate M&A.
- A recapitalization takes place where the current owner sells the majority or controlling stake to a private equity firm, and changes its structure of equity and debt.
- A leveraged buyout or leveraged recapitalization implies to a type of recapitalization where a private equity firm tends to acquire a company with the assistance of debt funding. In this situation, the assets of the acquired company serve as collateral for the debt.
- A divisional carve-out or spin-out is the process where a company aims to divest a business line or set of assets, contributes the business line or set of assets into a new entity, and ultimately sells the entity via a stock sale or merger.
Mergers provide a range of strategic and economic benefits to companies. Here are a few of the key drivers that make mergers a fairly advantageous option for business growth and competitiveness:
- Market expansion: With the help of a merger, companies are able to access new markets and expand their consumer reach and base. This geographic expansion allows companies to take advantage of new business opportunities and elevate their market share.
- Operational synergies: As companies join forces, they are able to leverage operational synergies in order to augment efficiency and lower expenses. Combining capabilities and resources can help generate economies of scale, improve overall business productivity and optimize the supply chain.
- Access to new resources and capabilities: Mergers provide companies with the chance to access capabilities and resources that were not previously available. This may include trademarks, patents, specialized knowledge, innovative technology and discerning other strategic assets that drive growth and competitiveness.
- Risk diversification: As a company joins forces with another firm, they are able to diversify their risks by entering varied industries or market segments. Such diversification helps lower reliance on a single market and can provide higher stability in the face of economic changes or market disruptions.
Earlier, Anand Jayapalan had also discussed how a strategic merger can strengthen the competitive position of the companies involved. As companies combine their capabilities and resources, they are able to increase their overall bargaining power, improve their ability to face competition and gain a competitive advantage in the marketplace.
