Mergers and acquisitions (M&As) are business transactions that alter the ownership structure for the company. This is often done by way of a purchase. This helps companies increase their market share, customer base, and product offerings. It can also help reduce costs for companies through economies of size and integration of supply chain. Diversification is also possible by acquiring new markets or gaining industry capabilities.
In a merger two companies that are similar in size join to create a single entity. In an acquisition, a larger firm buys a smaller company and incorporates it into its operations. A good example is the $70-billion purchase of healthcare giant Aetna by CVS Health in 2017. The Almacenamiento digital en ecosistema de innovación merger of the two companies resulted in a company that combined insurance services with pharmacy services and offered a streamlined experience for customers.
M&A can be used to boost revenue by increasing a company’s share of the market, which in turn can increase profits. It is a great method to eliminate competitors because companies will purchase smaller competitors who are struggling and shut them down. Facebook’s dominance in the field of social media has been made possible by the acquisition of a number of companies that were designed to eliminate its competitors and ensure its continued growth.
Another reason for M&A is to gain technological advantage through acquisition of an opponent. Google, for example has acquired a number of companies that offer search engine technology. It later integrated this into its platform. In other instances, companies use M&A to gain access to certain raw materials or production capabilities. For example, a food business may acquire a bakery to gain access to its ingredients and increase its quality of products.
The cost savings that can be realized from M&A are often called synergies. They may come in the form of lower costs resulting from economies of scale, lowered operating expenses by simplified processes, or less employees’ salaries and benefits due to a reduction in duplication. These are difficult to quantify, but they can be substantial. For instance the purchasing power of the two companies can be used to negotiate discounts with suppliers or to gain economies of scale when it comes to shipping and storage.
M&A can also be used to enter an area faster than organic growth. This can be done by buying an opponent in the market or by acquiring an established company that has the required expertise and knowledge to serve that clientele. One example is the acquisition of mobile phone maker Nokia by Microsoft in 2013.
M&A can fail, though it is possible to fail because there are a myriad of ways for a deal to go wrong. For instance, a firm might overlook information that is harmful or become too eager to sign an agreement. It can also miscalculate the time required to reap the anticipated synergies. These problems can have a significant negative impact on the price of the company’s stock and prospects for growth. In most cases they are resolved through careful analysis and careful negotiation by experienced M&A lawyers.