Merger & Acquisition Process Checklist

Identifying the motives for mergers is very important, they reflect the reasons why two or more companies, merging, are more expensive than separately.

Merger & Acquisition and Its Role in Corporate Management

In modern corporate management, there are many different types of mergers and acquisitions of companies. The main features of the classification are the following:

  • the nature of the integration of companies;
  • nationality of the merged companies;
  • the attitude of companies towards mergers;
  • terms of merger/acquisition;
  • merge mechanism.

The specific potential involved in corporate mergers subdivides mergers:

  • for production – these are mergers, in which the production capacities of two or more companies are combined in order to obtain a synergistic effect by increasing the scale of activities;
  • for financial – these are mergers, in which the merged companies do not act as a whole within the production process, and therefore, obtaining a significant synergistic effect is not at the forefront. At the same time, a single centralized financial policy, which helps to strengthen the position of the combined company in the securities market and in financing innovative projects.

Thus, based on the foregoing, the distinction between the terms “merger” and “takeover” can be established depending on the degree to which the owners of shares of the integrated companies retain control over the activities of the newly formed structure. At the same time, the merger is considered as a voluntary merger of several companies into a new one, in which the shareholders of the target company retain their rights to a share in the capital of the company, having received shares of the newly formed joint-stock company in return for the previous securities. A takeover of a company implies the repurchase from shareholders of shares in the target company of a larger (or 100%) share of the share capital, at which the previous owners lose their rights to a share in the capital of the combined company.

The Checklist of M&A Process

At the heart of all mergers and acquisitions is the desire of company owners and managers to obtain additional benefits. Summarizing the experience of various studies, we can single out the following most frequently mentioned motives driving the management of companies and underlying decisions on mergers or acquisitions: Take a look at the merger and acquisition checklist:

  • striving for growth;
  • expectation of operational or financial synergy;
  • striving for diversification;
  • personal motives of managers (theory of pride, arrogance);
  • separation of ownership from control and the problem of delegation of authority (theory of agency costs);
  • the desire to improve the efficiency of business operations (insufficient efficiency of enterprises);
  • the desire to increase the market capitalization of the company by publishing a tender proposal;
  • the desire to strengthen the monopolistic position of the company;
  • buying a company for the sake of owning its assets at a price less than the replacement cost;
  • purchase of a company for the purpose of its subsequent sale in parts;
  • tax reasons.

Mergers and acquisitions can improve a company’s awareness of technology and supplier costs (example: IBM’s purchase of several microprocessor manufacturers); about the preferences of consumers of their products. At the same time, it is not necessary to buy a supplier or dealer that provides 100% of the need for these services for the company. For example, many wholesale companies in the pharmaceutical market have several pharmacies to study consumer demand and its dynamics. The main reason for the restructuring of companies in the form of mergers and acquisitions lies in the desire to obtain and enhance the synergistic effect.