The market for mergers and acquisitions is among the corporate finance’s most dynamic and lucrative markets. M&A is not a method that every company should implement but for those that can, it can provide enormous growth potential. M&A transactions can be very complex and require careful planning and execution in order to be successful. The M&A starts with a thorough assessment of the business. This may include high-level talks between buyers and vendors to see how the two companies strategically integrate.
After the initial evaluation the preliminary offer can be made to the targeted company by the acquiring firm. Depending on the situation the process can be carried out either through an outright acquisition or a tender offer. An outright acquisition involves the acquiring firm buying all shares of the targeted company. This is performed without the board of directors or the management of the company being targeted.
A tender offer however, allows a publically traded company to directly communicate with a publicly owned company’s shareholders and offer to buy their shares at a price agreed by both parties. This is a hostile takeover that requires the shareholders of the company to approve the deal before it can be completed.
The potential to create revenue and cost synergies from the combination of two companies is the main reason for an organization to seek M&A. If a car maker buys an established seat belt manufacturer they can benefit from economies of scale that reduce the cost per item when production increases. Companies also use M&A to gain access to technology that would be costly or time consuming to develop internally.