Mergers and acquisition refers to that segment of corporate finance and management where two or more companies combine their resources to create a new business entity. These commercial organizations are able to achieve this through either purchase of one establishment by another or through amalgamation. In the case of merger, two corporate enterprises of similar size, market share and operating capacity come together to form a new company with a distinct name. However, in the case of an acquisition, a larger company buys the majority of shares and stock from the investors of small business enterprise, which subsequently become its subsidiary.
How do mergers and acquisitions take place?
Robert Stefanowski , an American expert on such business growth strategies, explains that either a merger or an acquisition between two corporate enterprises begins with a sequence of informal dialogues between the top management of these organizations. When there is a meeting of minds in these talks, both parties start formal discussions on how they intend to achieve their common objective. On the successful conclusion of such negotiations, legal experts from both companies start preparing a letter of intent along with a purchase or merger contract. In addition to this, they carry out a due diligence of their respective commercial organizations. The execution of the growth strategy commences after the transfer of the purchase consideration from party to another is complete.
Both corporate enterprises hire the services of intermediaries like investment bankers to assist in carrying out the negotiations on behalf of their client. In addition to this, these experts also handle the legal and accounting aspects of such growth strategies in addition to managing all the necessary paperwork. In most cases, the duration of such business consolidation transactions last for six to nine months depending upon the complexity of the agreements between the parties.
Why do such growth strategies matter to corporate enterprises?
The main rationale for corporate enterprises entering into merger or acquisitions with other companies is because of synergy. This means that the net value of the business entity that emerges because of this growth strategy is more than the value of the independent companies together. This goes a long way in helping business enterprises to grow, find the resources to implement innovative ideas and introduce better products in the market environment. In addition to this, the corporate enterprises can use of their monetary resources more effectively and have larger economies of scale. This goes a long way in enhancing the market presence of the corporate entity that results from such business consolidation agreements. Apart from this, such strategies help to increase the profits of the business establishment and enhance its competitive edge in the business environment.
Robert Stefanowski says mergers and acquisitions are a catalyst for companies who want to increase increasing their market share in the business environment, where they operate. In addition to this, these businesses can gain the competitive advantage by combining their resources with other similar establishments. In fact, chief executive officers who successful carry out merger or acquisition strategies on behalf of the.r organizations become the crowning jewel in the industry.