Mergers and acquisitions are financial transactions that are used to indicate the consolidation of firms or assets. These financial transactions include mergers, acquisitions, consolidations, tender offers, asset purchases, and management acquisitions.

 Mergers and Acquisitions

Mergers and Acquisitions History

According to the Institute for Mergers, Acquisitions, and Alliances (IMAA), more than 325,000 mergers and acquisitions (M&A) deals worth almost $34,900 billion have been disclosed in the United States since 1985. Despite the devastating effects of the COVID-19 epidemic on the US economy and financial markets, M&A activity did successfully in 2020. In 2020, the US market had roughly 15, 271 M&A transactions for almost $1,125 billion.

The following are some of the most significant technological purchases in 2020:

In July, Uber agreed to buy meal delivery company Postmates for $2.65 billion in cash and equity.

Google announced the purchase of North in June, but did not disclose the price.

Amazon has announced the acquisition of Zoox, a self-driving car firm, for $1.2 billion.

In June, Mastercard announced the purchase of Finicity for $825 million.

Microsoft has announced the purchase of CyberX, an Israeli IoT security firm.

In May, Microsoft announced the purchase of Softomotive, a UK-based producer of robotic process automation software, for an undisclosed sum.

On May 15, Facebook announced the acquisition of Giphy, a popular searchable collection of moving pictures or gifs.

S&P Global has agreed to acquire HIS Market, headquartered in London, in an all-stock transaction valued at $44 billion.

Salesforce has agreed to pay $27.7 billion for Slack.

What exactly is a merger and acquisition (M&A)?

Mergers and acquisitions (M&A) refers to the consolidation of firms or assets via a variety of financial transactions such as mergers, acquisitions, consolidations, tender offers, asset purchases, and management acquisitions. Mergers are the combining of two businesses to create one legal entity, while Acquisitions are when one firm buys the assets and/or liabilities of another company. The reasoning behind deciding to enter into an M&A transaction is that two separate companies combined create more value than being separate entities. Other reasons include, but are not limited to, gaining a competitive advantage, acquiring market share, replacing leadership, cutting costs, diversifying products, and so on.

Mergers and acquisitions may be done in a variety of ways, including:

  • asset acquisition
  • acquisition of stock
  • the exchange of shares for assets
  • exchange of shares for shares

M&A transactions often need shareholder approval if the deal alters the board of directors’ relationship with shareholders, limiting shareholders’ power to replace their management once the transaction is completed. Furthermore, with a few exceptions, mergers need a shareholder vote on the part of both the target and the acquiring business.

Mergers and Acquisitions Come in a Variety of Forms

The sorts of deals covered under M&A are as follows:

Merger

A merger is a stock transaction in which two firms unite (merge) into one. Subject to certain exclusions, the surviving company takes over all of the extinguished firm’s assets, rights, and obligations. The merger is controlled by the laws of the states where the firms were formed. Forward mergers, forward triangle mergers, and reverse triangular mergers are the three most common forms of mergers.

Acquisition

When a firm intends to acquire another company, various things must be addressed for the deal, including tax concerns, management and personnel issues, and legal requirements in the relevant countries. The legal form of the businesses is determined by the kind of purchase. In a straightforward purchase, the acquiring business receives a majority interest in the acquired company, which retains its name and legal structure. Morgan Stanley’s 2020 purchase of E*TRADE is an example of this deal, in which both firms kept their identities and organisational structures.

Consolidation

Consolidation is the joining of two or more businesses to establish a new one. The distinction between a consolidation and a merger is that none of the previous firms survive in a consolidation. Here’s an example to help you understand: Two entities, A and B, merge to form company C, often known as a successor business. In certain jurisdictions, the prerequisites for carrying out a consolidation are the same as those for carrying out a merger.

In each M&A transaction, the following steps must be taken:

Step 1: Pre-acquisition review: Once the firm chooses to acquire an entity, an essential step is to conduct a pre-acquisition review, which involves self-evaluation of the acquiring company, value calculation, and growth assessment of the target companies.

Step 2: Conduct a search and screen: This process entails looking for potential takeover contenders. The process is primarily focused on identifying a strong strategic match for the acquiring firm.

Step 3: Perform due diligence on the target: Following the identification of a target firm in conjunction with a possible purchase, the acquirer will do extensive due diligence on the target business. The acquiring company will expect the target to provide standard documents such as corporate records, stockholder information, securities issuances, financing documents, and other materials such as third-party contracts, warranty and service agreements, inter-company agreements, third-party actions against the target company, and so on.

Step 4: Negotiate the acquisition of the target: Once all of the preceding stages have been accomplished, the next step is to begin discussions to reach an agreement on a price and have the attorneys create the buy and sale agreement, as well as any required ancillary documents. From the moment a target firm is identified, through due diligence, to legal review and writing, an M&A transaction might take months. It is critical to engage with an expert M&A attorney to analyse the tax, financial, control, ownership, and other substantive implications of the proposed deal.

In conclusion

For M&A transactions, the efficiency of the negotiation is everything. A successful M&A deal requires a significant amount of labour and the resolution of various major commercial, legal, tax, employment, and liability concerns. Success is mostly determined by the skill of negotiating and the parties’ willingness to finish the agreement.