Mergers and Acquisitions: Conclusion
AAA
  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: Conclusion


One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power.

By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies.

M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals.

Let's recap what we learned in this tutorial:

  • A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another.
  • The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones - synergy is the logic behind mergers and acquisitions.
  • Acquiring companies use various methods to value their targets. Some of these methods are based on comparative ratios - such as the P/E and P/S ratios - replacement cost or discounted cash flow analysis.
  • An M&A deal can be executed by means of a cash transaction, stock-for-stock transaction or a combination of both. A transaction struck with stock is not taxable.
  • Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds, unlock hidden shareholder value and sharpen management focus. De-mergers can occur by means of divestitures, carve-outs spinoffs or tracking stocks.
  • Mergers can fail for many reasons including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of day-to-day operations.

  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
RELATED TERMS
  1. Vertical Merger

    A merger between two companies producing different goods or services ...
  2. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  3. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  4. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
  5. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  1. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    Learn how the market share of a few firms affects the Herfindahl-Hirschman Index calculation and why the index jumps as market ...
  2. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    Learn about mergers and acquisitions and how these two corporate actions differ based on the size and participation of the ...
  3. Who are Family Dollar's (FDO) main competitors?

    Learn about the discount retail company Family Dollar and its main competitors. Explore how competitor Dollar Tree plans ...
  4. What are the different ways I can file my income tax return?

    Learn about the potential consequences of violating the terms of a letter of intent, such as breakup fees, damages and agreement ...

You May Also Like

Related Tutorials
  1. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  2. Economics

    American Depositary Receipt Basics

  3. Investing Basics

    Stock Basics Tutorial

  4. Options & Futures

    Binary Options Tutorial

  5. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

Trading Center