The market for mergers and acquisitions is among the most dynamic and lucrative opportunities in corporate finance. M&A is not a strategy that every company should implement but for those that can, it could provide immense growth potential. M&A transactions can be a bit complicated and require careful planning and execution to be successful. The M&A begins by evaluating the business. This can include high level discussions between sellers and buyers to see how the companies can be strategically integrated and how their values align, and what potential synergies might be a possibility.
After the initial evaluation and a preliminary offer may be made to the target company by the acquiring firm. This can be done either by way of an outright purchase or a tender. A firm can purchase all shares of a company through an outright acquisition. This is done without the company’s board of directors and management and typically occurs for an amount that is higher than what the shares were worth prior to being acquired.
A tender offer allows a publicly traded company to reach out to shareholders of a publicly owned company and offer to purchase their shares at a price that is agreed by both parties. This is a kind of a hostile takeover, and requires the approval of the shareholders of the target company before it can be finalized.
The opportunity to realize savings in revenue and costs through the combination of two companies is the primary reason behind an organization to seek M&A. For example when a car company buys a manufacturing company that makes seat belts, they can realize economies of scale and reduce the cost per unit as production grows. M&A can also be used by companies to access technologies that would be costly or time-consuming to develop in-house.