Mergers and acquisitions, also known as M&A, are business processes to acquire new assets by buying, acquiring or merging with other companies. As with any type of business, there are pros and cons to both mergers and acquisitions. Benefits include: the potential to increase a company’s earnings, the potential to increase a market share, and the potential to add assets to a company’s holdings. While mergers and acquisitions have several advantages, they also have several disadvantages. Some of the downsides are poor public reaction to hostile takeovers, resistance from the target company, and taking on additional liabilities and problems.
While mergers and acquisitions are usually discussed together, they are separate processes. There are two main types of acquisitions, a share purchase and an asset purchase. In a share purchase acquisition, a company purchases shares in a target company from its shareholders. By doing so, it acquires equity in the target company by merging the two companies. The second type of acquisition is asset acquisition. In an asset purchase, the buying company selects only certain assets to purchase. This allows the buying company to choose the assets it wants to acquire without having to take on the liabilities and problems of the target company.
Mergers are also interested in acquiring assets, but finance their purchases differently. There are three basic types of mergers, All Share Deals, Cash Deals and Hybrid Deals. In all share deals, the merger is financed by exchanging shares in one company for shares in the other. A cash deal uses cash to purchase company stock. In hybrid deals, both cash and stock are used to fund the merger deal. The type of financing used depends on the companies involved and the liquidity of the buying company and the target company.