1. Concept

Mergers and Acquisitions (M&A) is an abbreviation for the combination of two terms: Mergers and Acquisitions. M&A activity involves gaining control of a business through the merger or acquisition of another company, either in part (shares) or in whole.

Mergers involve the linking of companies of similar scales to create a new legal entity. All assets, benefits, rights, or obligations of the merged or acquired company will be transferred to the merging company.

Acquisitions, on the other hand, involve a larger company purchasing smaller and weaker businesses while the acquired company retains its legal entity. The acquiring company gains legal ownership of the acquired company.

  1. Objectives of M&A Transactions
  1. Strategic Role

M&A helps businesses:

  1. Classification

Mergers and acquisitions can be classified based on the nature of the merger. There are three basic forms of M&A, including: Horizontal M&A, Vertical M&A, and Conglomerate M&A.

Horizontal M&A

When a mobile phone manufacturing company merges with another company in the same industry, it's called a horizontal merger. This is a merger between companies offering similar or identical products or services to end consumers, meaning they are in the same industry and production stage. The benefits of this type of merger include eliminating competition, increasing market share, revenue, and profits.

Vertical M&A

When a clothing store merges with a textile factory, it's called a vertical merger because they share the same value chain but different production stages. This type of merger is often done to ensure continuous supply without interruption.

Conglomerate M&A (corporate consolidation)

This involves mergers and acquisitions to form conglomerates. When a company producing bed linens merges with a company producing beds, it's called a conglomerate merger, as these are complementary products often purchased together.

This type of merger creates opportunities for businesses to venture into other areas of the industry and gain access to resources and markets not previously available.