MERGERS AND ACQUISITIONS

Mergers and Acquisitions

Mergers and Acquisitions

First of all it is important to understand the concepts of mergers and acquisitions. In simple terms, a merger and acquisition occurs when two or more companies join by becoming a one company. Usually this is done to help companies succeed as they become united. It is usually much easier for two or more companies to join, rather than for a company to create a new business from scratch. This is another benefit when companies merge. This corporate strategy is also called an M & A. Companies often do to help the growth and efficiency of the other company. It is done to combine companies by selling their products to improve the financial management, or move a growing company in a fast growth rate. All the companies involved in a merger are absorbed within the union, which is to acquire new business. (Buono, 1989, pp.143-157)

During an acquisition, a company is purchased by another. All assets of the company are then bought as the property of the company. This business strategy is often a positive development for smaller companies. All parties involved, whether the board of directors or owners in case of private property, need to reach an agreement of merger and acquisitions. When the new company is formed, the original company ceases to exist and all assets and staff are then combined. Depending on the business, the merger and acquisition can be either simple or complex. There is a difference between mergers and acquisitions, however, often speaks of them together. There are various methods of financing a business of merger and acquisition, often the financing of a merger is different from an acquisition, also due to firm size. When a company is purchased with cash, it is usually not an acquisition and merger. The main shareholders of the company were removed from the image, and the company is in indirect control of the bidder's shareholders alone. (Baker, 2000, pp.2219-2257)

This deal makes sense when there is a downward trend in interest rates. One advantage of using cash is that there is less chance of a dilution of EPS in the acquisition of the company. The question that comes into play when using cash is that cash flow the company is placed under restrictions. A company can also be financed by bank loans or bond may arise. In addition, the acquirer's balance sheet may be offered for consideration. When an acquisition is financed, there is what is known as a leveraged buyout, this is due to debt, and debt often moved to the balance of the acquired company. There is also what is called a hybrid, this is when the cash and debt, or cash and shares, combined with the purchase of companies. (Chase, 1997, pp.1753-1763)

There are various reasons for the companies to utilize the option of mergers and acquisitions. When there is a combination of two companies, it produces the possibility of eliminating repetition of services or operations, that reduces the cost of the company, ...