The Basics Of Mergers And Acquisitions
  1. Mergers and Acquisitions: Introduction
  2. Mergers and Acquisitions: Definition
  3. Mergers and Acquisitions: Valuation Matters
  4. Mergers and Acquisitions: Doing The Deal
  5. Mergers and Acquisitions: Break Ups
  6. Mergers and Acquisitions: Why They Can Fail
  7. Mergers and Acquisitions: Conclusion

Mergers and Acquisitions: Introduction

By Ben McClure

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks.

Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Next time you flip open the newspaper's business section, odds are good that at least one headline will announce some kind of M&A transaction.

Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of whether you should cheer or weep when a company you own buys another company - or is bought by one. You will also be aware of the tax consequences for companies and for investors.

Mergers and Acquisitions: Definition

  1. Mergers and Acquisitions: Introduction
  2. Mergers and Acquisitions: Definition
  3. Mergers and Acquisitions: Valuation Matters
  4. Mergers and Acquisitions: Doing The Deal
  5. Mergers and Acquisitions: Break Ups
  6. Mergers and Acquisitions: Why They Can Fail
  7. Mergers and Acquisitions: Conclusion
  1. Put-Call Parity

    A principle that defines the relationship between the price of ...
  2. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  3. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  4. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. ...
  5. Implied Volatility - IV

    The estimated volatility of a security's price.
  6. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  1. Why do companies release financial figures in terms of fully diluted shares outstanding?

    The value of a company is determined by the number of shares it issues and the price at which these are traded on the stock ... Read Full Answer >>
  2. How does horizontal integration allow companies to share resources?

    In a horizontal integration, a company either acquires another company or merges with that company. This allows the resulting ... Read Full Answer >>
  3. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    In economics and commercial law, the Herfindahl-Hirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >>
  4. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    The terms "merger" and "acquisition" are used together because they both describe processes by which two companies become ... Read Full Answer >>
  5. Who are Family Dollar's (FDO) main competitors?

    North Carolina-based Family Dollar (FDO) is one of the biggest discount retailers in North America. Competitors include companies ... Read Full Answer >>
  6. What are the different ways I can file my income tax return?

    In contractual law, a letter of intent is a document that represents an agreement between parties before the final agreement ... Read Full Answer >>
  7. What are the key differences between pro forma statements and GAAP statements?

    The U.S. generally accepted accounting principles (GAAP) require companies to adhere to uniform reporting standards that ... Read Full Answer >>
  8. How is a leveraged buyout different from a buyout?

    In finance, a buyout refers to a purchase of voting stock of a target firm by an acquiring company, where the acquirer gains ... Read Full Answer >>
  9. What are some examples of successfully executed leveraged buyouts?

    In finance, a buyout refers to the purchase of a company's voting stock in which the acquiring party gains control of the ... Read Full Answer >>
  10. What happens to the shares of a company that has been the object of a hostile takeover?

    The shares of a company that is the object of a hostile takeover rise. When a group of investors believe management is not ... Read Full Answer >>
  11. Why should investors pay attention to a corporation's selling, general and administrative ...

    Selling, general and administrative expenses (SG&A) are significant elements of many companies' income statements. These ... Read Full Answer >>
  12. What are the major differences between investment banking and private equity?

    Private equity and investment banking both raise capital for investing purposes but tend to do so in very different ways. ... Read Full Answer >>
  13. What can cause a merger or acquisition deal to fail?

    When two large companies announce plans to merge, or when the larger of the two acquires the smaller entity, the surviving ... Read Full Answer >>
  14. What are some of the more reputable private equity firms?

    Private equity firms invest money in companies and attempt to make those companies more profitable. If the private equity ... Read Full Answer >>
  15. What are examples of major companies in the aerospace sector?

    Major companies in the aerospace sector include United Technologies, Boeing, Lockheed Martin, General Dynamics and Northrop ... Read Full Answer >>
  16. What was Rupert Murdoch's role in the wiretapping scandal?

    According to Rupert Murdoch, he had no direct role in the wiretapping scandal involving the now-defunct news tabloid “News ... Read Full Answer >>
  17. What responsibilities does a company take on after an acquisition?

    Most of the attention during an acquisition goes towards valuation, market shares and legalities. Little notice is given ... Read Full Answer >>
  18. What is the best software to use for business analytics?

    The market for business analytics and business intelligence software is dynamic. New products and technologies are constantly ... Read Full Answer >>
  19. What is the difference between a merger and an acquisition?

    A merger occurs when two separate entities combine forces to create a new, joint organization. An acquisition refers to the ... Read Full Answer >>
  20. What are the legal barriers to vertical integration?

    Vertical integration through internal expansion is not vulnerable to legal challenges. However, if the vertical integration ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!