Mergers and Acquisitions (M&A) Processes, Types and Structure
Understand Mergers and Acquisitions (M&A) process, types, and structures. Learn from a 10-step guide, including acquisitions, mergers, consolidations, tender offers, and management buyouts.
Mridula Sharma5 Apr, 2024
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The mergers and acquisitions (M&A) process involves several steps and can last from 6 months to a few years. This guide will walk you through each step of the acquisition process, explain the different types of acquisitions (strategic versus financial buys), highlight the significance of synergies (both hard and soft), and discuss transaction costs. For a comprehensive understanding of the M&A process, read this article for the CS exam .
What Are Mergers and Acquisitions (M&A)?
Mergers and acquisitions (M&A) involve companies combining or acquiring each other's major assets through financial deals. This can happen in various ways: one company may outright buy and absorb another, merge to form a new entity, acquire specific assets, make a tender offer for stocks, or initiate a hostile takeover. These activities fall under the umbrella of M&A. Financial institutions also have divisions dedicated to managing such activities. While 'mergers' and 'acquisitions' are often used interchangeably, they have nuanced differences. An 'acquisition' occurs when one company takes over another entirely. Conversely, a 'merger' happens when two similar-sized firms unite to operate as a single entity, rather than independently. This is often termed a 'merger of equals.' For instance, Daimler-Benz and Chrysler merged to form DaimlerChrysler, with both companies' stocks being replaced by new company stock. In some cases, like the brand refresh in February 2022, companies may undergo name and ticker changes, as seen with Daimler becoming the Mercedes-Benz Group AG (MBG). The distinction between a 'merger' and an 'acquisition' also depends on the agreement between CEOs. If both agree to join forces for mutual benefit, it's considered a merger. However, if the target company is unwilling and the takeover is hostile, it's labelled as an acquisition. The classification is based on the nature of the deal and how it's communicated to the target company's stakeholders, including the board of directors, employees, and shareholders.Mergers and Acquisitions (M&A) Processes
If you're in investment banking or corporate development, you'll need a clear M&A process. Investment bankers guide CEOs, CFOs, and corporate development pros through the steps.Here's a basic 10-step Mergers and Acquisitions process:
- Plan your acquisition strategy: Figure out what you want from the deal, like expanding product lines or entering new markets.
- Define your search criteria: Decide what factors matter most in finding potential targets, such as profit margins or location.
- Search for targets: Use your criteria to find and evaluate potential companies.
- Start planning the acquisition: Reach out to companies that fit your criteria and seem promising.
- Value the target: Gather financial information from the target to assess its worth.
- Negotiate: After valuing the target, make an offer and negotiate terms.
- Conduct due diligence: Dig deep into the target's finances, operations, and more to verify its value.
- Create the purchase contract: Finalize the agreement for sale, deciding on asset or share purchase.
- Sort out financing: Arrange the financing details once the contract is signed.
- Close the deal and integrate: Complete the acquisition and start merging the two companies.
Mergers and Acquisitions (M&A) Deal Structure
Structuring a deal in M&A can be tricky. It involves considering various factors like antitrust laws, securities regulations, corporate law, competition from other bidders, taxes, accounting, market conditions, financing options, and specific negotiation points. Key documents used in this process are the Term Sheet, which helps in raising funds, and the Letter of Intent (LOI), which outlines the basic terms of the deal.Also Read: Role of Company Secretary in Board Meetings
Types of Mergers and Acquisitions (M&A)
When companies want to team up or change ownership, they often go through different types of deals known as Mergers and Acquisitions (M&A).Mergers:
Mergers happen when two companies decide to join forces. Back in 1998, Digital Equipment Corporation and Compaq merged, with Compaq absorbing Digital Equipment. Later, Compaq merged with Hewlett-Packard. These mergers lead to new ticker symbols for the companies involved.Acquisitions:
In acquisitions, one company buys a majority stake in another. For example, in 2004, Manulife Financial Corporation acquired John Hancock Financial Services. The names and structures of both companies usually stay the same.Consolidations:
Consolidation forms a new company by merging core businesses and leaving old structures behind. In 1998, Citicorp and Travelers Insurance Group combined to create Citigroup.Tender Offers:
Tender offers involve one company directly buying the stock of another at a set price. Johnson & Johnson did this in 2008 when it bought Omrix Biopharmaceuticals.Acquisition of Assets:
Sometimes, one company buys the assets of another. This often happens during bankruptcy proceedings when companies bid for the assets of the bankrupt firm.Management Acquisitions:
In management acquisitions, a company's executives buy a controlling stake, often with the help of financiers. Dell's founder, Michael Dell, did this in 2013. Take your career to the next level with our comprehensive Company Secretary Courses . Enroll now to gain valuable skills and advance your professional journey.| Also Check: | |
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Mergers and Acquisitions (M&A) FAQs
What is the M&A process?
Understand the 10-step process involved in mergers and acquisitions, guiding investment bankers and corporate professionals through each stage.
What are the different types of M&A deals?
Explore mergers, acquisitions, consolidations, tender offers, asset acquisitions, and management acquisitions, each with unique implications for companies involved.
How do mergers and acquisitions differ?
Learn the distinctions between mergers and acquisitions, including scenarios where companies merge as equals or when one company acquires another outright.
What factors influence M&A deal structures?
Discover the complexities involved in structuring M&A deals, considering antitrust laws, regulations, taxes, financing, and negotiation points.
Who initiates M&A deals?
Understand the roles of CEOs, CFOs, corporate development professionals, and investment bankers in initiating and guiding M&A transactions.
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