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One of the most dynamic and significant processes in the world of high finance is mergers and acquisitions (M&A). These transactions can run into the hundreds of millions, if not billions, of dollars. In fact, investment banks have entire departments dedicated to establishing strategies and guidelines for bringing together two companies. Let’s take a look then at these often headline grabbing corporate activities. Thought the name M&A lumps them together, an acquisition and a merger are different things. An acquisition is a situation where one company takes over another. A merger is a case where two companies, generally of equal size, join together and combine their organizations and in so doing, create a brand new company. After a merger, old company stocks are no more and a new stock is issued. For businesses, the idea behind acquisitions and mergers is that the joining the two companies will have more value than when they are separate. Both parties hope to become enhanced by combining resources after the union. For example, costs can be cut with staff reductions. Many times after mergers or acquisitions, there is an overlap in jobs throughout the different departments, such as accounting. Any business synergy created is not limited to just savings from reduced staffing. Economies of scale can also take hold. For example, the new larger company can posses greater purchasing power than the two “smaller” companies and thus by extension save money on product parts and so lower their cost to produce a product. Additionally, a union can increase market reach, product visibility, and research and development effectiveness. As for business structure, there are a few types of mergers. One common type is called horizontal merging. This is when two companies in direct competition with one another, selling like products in the same market, decide to join together. Another form of combination is a vertical merger. This is accomplished when two companies producing two different product lines come together to offer a new type of finished product. An example of this would be an ice cream cone manufacturer hooking up with an ice cream producer to offer a new ice cream novelty. The world of mergers and acquisitions is wide and sometimes pretty complex. They might be hostile or they may be cooperative. They might involve enormous cash purchases or stock swaps. They may ultimately boost the viability of the company. Yet if mismanaged, a merge or acquisition may bring about a company’s decline. Looking for comprehensive info on mergers and acquisitions? Get the exclusive inside skinny instantly in our guide to all you need to know about online due diligence risks. |
Posts Tagged ‘mergers’
A Basic Study Of Mergers And Acquisitions
Friday, June 3rd, 2011The Benefits Of A Business Going Public
Wednesday, January 27th, 2010| Scentsy | Flameless Candles | Wickless Candles |
After a company has been in business for a while and begins to see success, they will start to contemplate taking the business public. Going public means the business will have stock and shareholders. There are a number of reasons why companies go public which is mainly due to the many benefits that come with such a high profile venture. The following outlines the benefits of a business going public: Increase Capital: By going public, a company will able to raise millions in capital. You can increase your business’s capital by selling stock on the open market. By implementing an Initial Public Offering (IPO), one can raise a significant amount of capital such as by selling stock and issuing bonds, for such business activities as increasing revenue, marketing, expanding, eliminating debt, research, business development, and increasing corporate diversity. Public companies have a greater valuation than private companies. Liquidity: With an increase in its liquidity, the value of the public company will be higher because buyers and sellers are more able to engage in market participation. Going public allows a company to create a market for its stock. Liquidity can also provide an investor with more options such as increasing the diversity of their portfolio, makes it easier to buy and sell, and has a more adjustable asset allowance. Mergers and Acquisitions: A publicly traded company can use their stocks as cash when acquiring or merging with other businesses. With the increase in its liquidity, it makes the business more attractive for mergers and acquisition proposals. It will increase the profile of the business and boost consumer confidence making it a good choice for other companies looking for new investment opportunities. Increase Future Profitability and Sustainability: In order for a company to ensure its future as a thriving and financially stable business, it is essential to have access to new and future capital. Because on average an IPO can raise any where from $25 - 50M, going public will allow them to establish capital for the future. As well, they have the ability go back to the market to raise more capital when needed. Once public, the company will be seen as a safer investment risk, which will help in obtaining better financing terms when seeking loans. Attract Top Employees: Because businesses are always competing for the most talented staff, offering stocks and stock options along with salary, gives that business a competitive edge. Providing stock as a reward for high productivity is often more economical than giving out cash bonuses. Improve a Company’s Image: The image of a business is a key part of achieving success. Because public companies have higher profiles than private businesses, it helps with increasing sales, attracting more customers and establishing a loyal customer base, and acquiring long term business contracts. Publicizing the business along with a compelling marketing strategy will significantly help with the growth of the business. Over time the prestige of the company will increase as well as creating brand recognition. A company that does not go public will often have a much more difficult time growing and expanding. A company with big ambitions will normally take their business public to take advantage of all of the opportunities available which will help them to succeed long term. For more information about making an initial public offering, be sure to consult with the professionals. There are many things to consider on how to IPO properly and legally. |