Mergers & acquisitions in finance

 Mergers and Acquisitions are important
events in today’s business scenario.
 It is the phenomenon of either two or more
companies coming together to form into one
bigger organization or buyout of one
company by another.

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 These are business transactions in nature
involving payment for each unit of stock.
 A merger is a consolidation of two or more
companies into one, an entirely new
company.


 Acquisition on the other hand is the transfer
of ownership and control of one company
from the one group of shareholders to
another.
 Leveraged buyout is observed in cases where
a large proportion of debt is used for
financing the buyout.


 Mergers and Acquisitions come under three
broad categories called
◦ Horizontal
◦ Vertical
◦ Conglomerate


 A Horizontal Merger is a merger taking place
between companies belonging to one
industry. The products of these companies
are close substitutes.


 A Vertical Merger is a merger which takes
place between companies belonging to same
industry, but the line of business is different.
 For example, a company in the
telecommunications industry acquiring an
internet service provider.
 Or a mobile phone based company acquiring
a land phone based company.


 A Conglomerate Merger is a type of merger in
which companies which are totally unrelated
coming together.
 For example, a company which is producing
heavy engineering products acquiring a 7star
chain of hotels can be considered as
Conglomerate merger.


 Why do companies buy other companies or
two or more companies merge into one large
company?
 The reason is that it is very easy to exercise
market control when the amount of
competition is reduced.


 Other reasons include growing economies
provide better opportunities which are best
made use only through combining
companies.
 In an economy troubled by ever-increasing
prices of raw materials, mergers and
acquisitions provide economies to scale in
production.


 An entry into a new market can be made
easier by acquiring an existing company.
 In this way, the expertise of the acquired
company and the capital from the acquiring
company can produce a new product whose
cost can be very low when compared to other
products in the market.


 With the above advantages, mergers and
acquisitions take place in an economy, which
can give a different shape to the industry.


 For more details visit our websites at
 http://www.helpwithassignment.com/finance
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 http://www.helpwiththesis.com


Mergers & acquisitions in finance

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Mergers & acquisitions in finance