The merger and acquisition process
One of the most important areas of corporate strategy that deals with the selling, buying and combining of companies is that of corporate strategy or mergers and acquisitions. The M&A road is one often followed with the ultimate aim of helping to promote the growth of an enterprise in its sector and aiming it to improve its market positioning. Merging with another enterprise can have a number of obvious advantages: it improves financial power, business clout and market share, allowing the newly formed conglomerate to further develop itself and further expand into the market. Financial backing and advice is necessary for a merger or acquisition to go through with support often coming from investment banks.
The terms ‘merger’ and ‘acquisition’ are often used interchangeably, but they are quite different processes. A merger, in the purer sense, leaving the legal jargon to one side, is a situation in which two firms agree to continue forward together as a single company, rather than to remain as two separately run entities. When two companies of a similar size come together it is known as a merger or a ‘merger of equals’. The occurrence of a merger of equals is increasingly rare but is still a term that is often heard proclaimed in the corporate world even if its not strictly true that the companies are equals.
An acquisition or a takeover is the purchase of one company by another company. Ensuring that one achieves success in this form of corporate endeavor has proved to be rather difficult; the acquisition process is notoriously complicated. The way in which an acquisition is able to develop or progress is dependent on a number of important factors, crucially how the takeover is perceived by shareholders, company’s directors and employees: If the perception is positive then the takeover will be ‘friendly, if not then the takeover is considered ‘hostile’. In the case of a hostile reaction, improvements of the terms of the negotiation are often called for.