The merger and acquisition market (M&A) is a key component of a lot of public companies growth strategies. Large public companies with surplus funds are often seeking acquisition opportunities to achieve inorganic growth. For the most part, M&A involves two companies in the same industry and at similar levels of the supply chain coming together to produce additional value.
In general, a company may purchase another company for cash, stock or the assumption of debt. Sometimes the investment bank involved in the sale of a company may also provide financing to the company that is buying it (known as”strategy finance”).
M&A typically begins with a thorough evaluation of the company being acquired, including financial reports along with management and business plans, and other relevant information. This process, known as valuation, may be carried out by the acquiring firm or consultants. The company that performs the valuation needs to take https://dataroomdev.blog/remote-mode-business-vdr-as-a-comprehensive-tool/ into account more than just the financial information. They also need to consider other aspects, such as the fit with culture and other factors that can impact the success of the deal.
The most frequent reason to make a merger or acquisition is to increase the size of the company. Adding to the size of an organization gives it economies of scale, which decreases operational costs as well as increases bargaining power with suppliers of raw materials, technology or services. Diversification can also enhance a company’s ability to weather downturns in the economy or to generate a more stable income. Lastly, some companies acquire competitors to establish their place in the market and eliminate future threats. This is often referred to as defensive M&A.