Mergers and acquisitions refer to Corporate Finance, Management and Strategy changes related to one company acquiring other company or joining with other company in order to create more business synergy.
Companies acquire another small or similar companies in order to improve market share, expand business, improve cost efficiency, improve effectiveness and competitiveness etc. Company’s board approve the acquisition process when there is some synergy involved in that or sustaining alone becomes difficult in the competitive market. Sometimes companies acquire other small companies to expand business in other area, to get access to new patents or innovations, to reduce competition or improve services.
A merger happens when two firms agree to for a single combined entity to improve efficiency and expand business. Both companies’ stocks are removed from a stock exchange and new shares of the new entity are issued to existing shareholders. Example: both Daimler-Benz and Chrysler became non-existent when the two firms merged to create a new entity named as Daimler-Chrysler.
Reasons behind Merger and Acquisitions:
Big companies buy small companies in similar industry or business line to increase business or achieve inorganic growth, improve market share, increase customer base etc- Example: Capgemini acquired iGate
Companies acquire other companies to increase service area- Example HCL acquired Axon group to increase service area in Consulting domain specially SAP consulting
Companies acquire other company to improve presence in specific geographic area – Infosys acquired loadstone to improve presence in Europe
Companies acquire companies in other industry or business line increase services offering or enter into other industry to achieve diversification and growth. Example: Google acquired Youtube, Microsoft acquired Hotmail.
Companies acquire other company to reduce competition in the market. Example: Oracle acquired PeopleSoft and Siebel to reduce competition in ERP space
Two similar companies merge with each other to reduce cost, improve efficiency and effectiveness and increase market share. Here lots of synergies can be utilized through merger process. Example: Merger of FlipKart and Myntra, Daimler and Chrysler etc.
One big company acquired other small company to gain access of more consumers or increase service area. Example: Facebook acquired Whatsapp
Companies can also acquire other company to gain access of new patents or innovations. Facebook acquired Instagram which is a photo sharing platform.