Comprehensive Guide to Mergers and Acquisitions: Types, Reasons, and Integration (Full Transcript)

Speaker 1: In this video, you are going to learn mergers and acquisitions. Topics I am going to discuss are what are mergers and acquisitions, reasons for mergers and acquisitions activity, types of mergers, forms of acquisition, and forms of integration in mergers and acquisitions. Let's start the video. Mergers and acquisitions is a general term that describes the unification of companies or assets, through various types of financial transactions, including mergers, acquisitions consolidations, tender offers, purchase of assets, and management acquisitions. The two terms mergers and acquisitions are often used interchangeably, however, they have somewhat different meanings. When one company takes over another, and confirms itself as the new owner, the purchase is called an acquisition. On the other hand, a merger describes two firms of approximately the same size, that join forces to move forward as a single new entity. A purchase deal will also be called a merger, when both CEOs agree that joining together is in the best interest of both of their companies. Unfriendly or hostile takeover deals, in which target companies do not wish to be purchased, are always regarded as acquisitions. We can classify a deal as a merger or an acquisition based on whether the acquisition is friendly or hostile, and how it is announced. Reasons for mergers and acquisitions activity. Mergers and acquisitions can happen for different reasons, such as. 1. Unlocking synergies. The common reason for mergers and acquisitions is to create synergies, in which the combined company is worth more than the two companies individually. Synergies can be due to cost reduction or higher revenues. 2. Higher growth. Inorganic growth through mergers and acquisitions is usually a faster way for a company to achieve higher revenues, as compared to growing organically. A company can gain by acquiring or merging with another company with the latest capabilities, without having to take the risk of developing the same internally. 3. Stronger market power. In a horizontal merger, the resulting entity will attain a higher market share, and will gain the power to influence prices. Vertical mergers also lead to higher market power, as the company will be more in control of its supply chain, thus avoiding external shocks in supply. I will discuss the horizontal and vertical merger later part of this video, so watch the video till the end. 4. Diversification. Companies that operate in cyclical industries feel the need to diversify their cash flows, to avoid significant losses during a slowdown in their industry. Acquiring a target in a non-cyclical industry, enables a company to diversify and reduce its market risk. Types of mergers. Horizontal mergers. A horizontal merger happens between two companies that operate in similar industries, that may or may not be direct competitors. Vertical mergers. A vertical merger takes place between a company and its supplier, or a customer along its supply chain. Think of an ice cream maker merging with a cone supplier. Congeneric mergers. Two businesses that serve the same consumer base in different ways, such as a TV manufacturer and a cable company. Market extension merger. Two companies that sell the same products in different markets. Conglomerate merger. They usually do this type of transaction for diversification, and is between companies in unrelated industries. Now come to, forms of acquisition. Stock purchase. In a stock purchase, the acquirer pays the target firm's shareholders cash or shares, in exchange for shares of the target company. Here, the target's shareholders receive compensation. Asset purchase. In an asset purchase, the acquirer purchases the target's assets, and pays the target directly. Let's move on to forms of integration in mergers and acquisitions. 1. Statutory. Statutory mergers usually occur when the acquirer is much larger than the target, and acquires the target's assets and liabilities. After the deal, the target company ceases to exist as a separate entity. 2. Subsidiary. In a subsidiary merger, the target becomes a subsidiary of the acquirer but continues to maintain its business. 3. Consolidation. In a consolidation, both companies in the transaction cease to exist after the deal, and a completely new entity is formed. If you want to read in details and download the PDF, go through the link in the description. If you find the video helpful, give us a like, share the video, and don't forget to subscribe to Education Leaves.