MERGERS & ACQUISITIONS (M&A)
Explained in Simple Terms
What is M&A?
Mergers and acquisitions (M&A) refer to the
processes of combining two or more companies
into a single entity or acquiring one company
by another.
These strategic transactions typically involve
the exchange of ownership, assets, and
liabilities between the involved parties.
Merger:
A merger occurs when two or more companies
decide to join together and form a new entity.
In this case, the original companies cease
to exist, and a new legal entity is established.
Acquisition:
An acquisition takes place when one company
purchases another company.
The acquiring company assumes control over the
acquired company's operations, assets, and
liabilities.
Types of M&A Transactions
1) Horizontal
Merger
2) Vertical Merger
3) Conglomerate
Merger
4) Concentric
Merger
1) Horizontal Merger
A horizontal merger occurs when two companies
operating in the same industry and offering
similar products or services combine their
operations.
The goal is often to increase market share,
eliminate competition, and achieve economies
of scale.
Example: Disney+ Hotstar
+
2) Vertical Merger
In a vertical merger, two companies operating at
different stages of the same supply chain merge,
or one company acquires another.
The aim is to improve efficiency, streamline
operations, and gain better control over the
production or distribution process.
Example: Zee Entertainment Enterprises
Limited Ltd. (ZEEL) and Dish TV India Limited.
3) Conglomerate Merger
It involves companies from unrelated industries
merging or one company acquiring another in a
different industry.
The motivation behind conglomerate mergers
is often diversification, entering new markets,
or leveraging existing capabilities in different
sectors.
Example: General Electric (GE) and NBC
Universal in 2011.
4) Concentric Merger
A concentric merger is a merger in which two
companies from the same industry come
together to offer an extended range of products
or services to customers.
This occurs when two businesses in the same
industry have the same clients but offer distinct
products and services.
Example: Acquisition of Whatsapp by Facebook.
Various Reasons for M&A
1) Expansion:
Companies may merge or acquire another
company to expand their market reach,
customer base, or geographic presence.
2) Synergy:
Synergy refers to the idea that the combined
company can create more value together than
the individual companies could on their own.
3) Diversification:
Mergers and acquisitions can be a strategy
for diversifying a company's product or
service offerings.
4) Competitive Advantage:
M&A can help companies gain a competitive
edge by eliminating a rival or acquiring valuable
intellectual property,technology, or talent.
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Harshal Jamdhade
