merger and acquisition

/finance/mergers-acquisitions/

Merger and acquisitions

Mergers and Acquisitions: Definition

The Main Idea

One

plus

one

makes

three:

this

equation

is

the

special

alchemy

of

a

merger

or

an

acquisition. The key principle behind buying a company is to create shareholder value

over and above that of the sum

of the two companies. Two companies together are

more

valuable

than

two

separate

companies

-

at

least,

that's

the

reasoning

behind

M&A.

This

rationale

is

particularly

alluring

to

companies

when

times

are

tough.

Strong

companies will act to buy other companies to create a more competitive, cost-efficient

company. The companies will come together hoping to gain a greater market share or

to

achieve

greater

efficiency.

Because

of

these

potential

benefits,

target

companies

will often agree to be purchased when they know they cannot survive alone.

Distinction between Mergers and Acquisitions

Although

they

are

often

uttered

in

the

same

breath

and

used

as

though

they

were

synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner,

the purchase is called an acquisition. From a legal point of view, the target company

ceases to exist, the buyer

be traded.

In the pure sense of the term, a merger happens when two firms, often of about the

same size, agree to go forward as a single new company rather than remain separately

owned and operated. This kind of action is more precisely referred to as a

equals.

its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two

firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one

company will buy another and, as part of the deal's terms, simply allow the acquired

firm

to

proclaim

that

the

action

is

a

merger

of

equals,

even

if

it's

technically

an

acquisition.

Being

bought

out

often

carries

negative

connotations,

therefore,

by

describing

the

deal

as

a

merger,

deal

makers

and

top

managers

try

to

make

the

takeover more palatable.

A

purchase

deal

will

also

be

called

a

merger

when

both

CEOs

agree

that

joining

together

is

in

the

best

interest

of

both

of

their

companies.

But

when

the

deal

is

unfriendly

-

that is,

when the target

company

does not

want

to

be purchased

-

it is

always regarded as an acquisition.

Whether

a

purchase

is

considered

a

merger

or

an

acquisition

really

depends

on

whether the purchase is friendly or hostile and how it is announced. In other words,

the real difference lies in how the purchase is communicated to and received by the

target company's board of directors, employees and shareholders.

Synergy

Synergy

is

the

magic

force

that

allows

for

enhanced

cost

efficiencies

of

the

new

business.

Synergy

takes

the

form

of

revenue

enhancement

and

cost

savings.

By

merging, the companies hope to benefit from the following:

Staff

reductions

-

As

every

employee

knows,

mergers

tend

to

mean

job

losses.

Consider

all

the

money

saved

from

reducing

the

number

of

staff

members

from

accounting,

marketing

and

other

departments.

Job

cuts

will

also

include

the

former

CEO, who typically leaves with a compensation package.

Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new

corporate

IT

system,

a

bigger

company

placing

the

orders

can

save

more

on

costs.

Mergers

also

translate

into

improved

purchasing

power

to

buy

equipment

or

office

supplies - when placing

larger orders,

companies have a

greater ability to negotiate

prices with their suppliers.

Acquiring new technology

-

To stay competitive, companies need to

stay

on top

of

technological

developments

and

their

business

applications.

By

buying

a

smaller

company

with

unique

technologies,

a

large

company

can maintain

or

develop a

competitive edge.

Improved market reach and industry visibility

- Companies buy companies to reach

new markets and grow revenues and earnings. A merge may expand two companies'

marketing and distribution, giving them new sales opportunities.

A merger can also

improve a company's standing in the investment community: bigger firms often have

an easier time raising capital than smaller ones.

That said, achieving synergy is easier said than done - it is not automatically realized

once

two

companies

merge.

Sure,

there

ought

to

be

economies

of

scale

when

two

businesses

are

combined,

but

sometimes a

merger does

just

the

opposite.

In

many

cases, one and one add up to less than two.

Sadly, synergy opportunities may exist only in the minds of the corporate leaders and

the

deal

makers.

Where

there

is

no

value

to

be

created,

the

CEO

and

investment

bankers

-

who

have

much

to

gain

from

a

successful

M&A

deal

-

will

try

to create

an image of enhanced value. The market, however, eventually sees through this and

penalizes the company by assigning it a discounted share price. We'll talk more about

why M&A may fail in a later section of this tutorial.

Varieties of Mergers

From the perspective of business structures, there is a whole host of different mergers.

Here

are

a

few

types,

distinguished

by

the

relationship

between

the

two

companies

that are merging:

Horizontal merger - Two companies that are in direct competition and share the same

product lines and markets.

Vertical

merger -

A

customer

and

company

or

a

supplier

and

company.

Think

of

a

cone supplier merging with an ice cream maker.

Market- extension

merger

- Two

companies

that

sell

the

same

products

in

different

markets.

Product-extension

merger

-

Two

companies

selling

different

but

related

products

in

the same market.

Conglomeration - Two companies that have no common business areas.

There are two types of mergers that are distinguished by how the merger is financed.

Each has certain implications for the companies involved and for investors:

Purchase

Mergers

-

As

the

name

suggests,

this

kind

of

merger

occurs

when

one

company purchases another. The purchase is made with cash or through the issue of

some kind of debt instrument; the sale is taxable.

Acquiring

companies

often

prefer

this

type

of

merger

because

it

can

provide

them

with a tax benefit. Acquired assets can be written-up to the actual purchase price, and

the

difference

between

the

book

value

and

the purchase

price

of

the

assets

can depreciate

annually,

reducing

taxes

payable

by

the

acquiring

company.

We

will

discuss this further in part four of this tutorial.

Consolidation Mergers - With this merger, a brand new company is formed and both

companies are bought and combined under the new entity. The tax terms are the same

as those of a purchase merger.

Acquisitions

As you can see, an acquisition may be only slightly different from a merger. In fact, it

may be different in name only. Like mergers, acquisitions are actions through which

companies

seek

economies

of

scale,

efficiencies

and

enhanced

market

visibility.

Unlike all mergers, all acquisitions involve one firm purchasing another - there is no

exchange

of

stock

or consolidation

as

a

new

company.

Acquisitions

are

often

congenial, and

all

parties

feel

satisfied

with

the

deal.

Other

times,

acquisitions

are

more hostile.

In an acquisition, as in some of the merger deals we discuss above, a company can

buy

another

company

with

cash,

stock

or

a

combination

of

the

two.

Another

possibility, which is common in smaller deals, is for one company to acquire all the

assets

of

another

company.

Company

X

buys

all

of

Company

Y's

assets

for

cash,

which means that Company Y will have only cash (and debt, if they had debt before).

Of course, Company Y becomes merely a shell and will eventually liquidate or enter

another area of business.

Another type of acquisition is a reverse merger, a deal that enables a private company

to get publicly-listed in a relatively short time period. A reverse merger occurs when a

private

company

that

has

strong

prospects

and

is

eager

to

raise

financing

buys

a

publicly-listed

shell

company,

usually

one

with

no

business

and

limited

assets.

The

private company reverse merges into the public company, and together they become

an entirely new public corporation with tradable shares.

Regardless

of

their

category

or

structure,

all

mergers

and

acquisitions

have

one

common

goal:

they

are

all

meant

to

create

synergy

that

makes

the

value

of

the

combined companies greater than the sum of the two parts. The success of a merger or

acquisition depends on whether this synergy is achieved.

什么是并购

并购的内涵非常广泛，一般是指兼 并（

Merger

）和收购（

Acqu isition

）

。

兼并

—

又称 吸收合并，指两家或者更多的独立企业，公司合并组成一家企

业，通常由一家占优势的公 司吸收一家或者多家公司。

收购

—

指一家企业用现金或者有价证券购 买另一家企业的股票或者资产，

以获得对该企业的全部资产或者某项资产的所有权，或对 该企业的控制权。

与并购意义相关的另一个概念是合并（

Consolidation

）

——

是指两个或两个

以上的企业合并成为一个新的企业，合并完成后，多个法人变成一个法人 。

并购的实质

并购的实质是在企业控制权运动过程中，

各权利主体依据企业产权作出的制

度安排而进行的一种权利让渡行为。

并购活动是在一定的财产权利制度和企业制

度条件下进行的，

在并购过程中，

某一或某一部分权利主体通过出让所拥有的对

< br>企业的控制权而获得相应的受益，

另一个部分权利主体则通过付出一定代价而获< /p>

取这部分控制权。企业并购的过程实质上是企业权利主体不断变换的过程。

并购的动因

产生并购行为最基本的动机就是寻 求企业的发展。

寻求扩张的企业面临着内

部扩张和通过并购发展 两种选择。

内部扩张可能是一个缓慢而不确定的过程，

通

过并购发展则要迅速的多，尽管它会带来自身的不确定性。

具体到 理论方面，并购的最常见的动机就是

——

协同效应（