The merger and acquisition market (M&A) is a key element of many public companies’ growth strategies. Large public companies that have excess cash are often looking for opportunities for acquisitions to gain inorganic growth. Most often, M&A involves two companies in the same industry at Read More Here similar levels of the supply chain, coming together to create value.
In general, a company could purchase another for cash, stock, or even debt. Sometimes, the investment bank involved in the sale of one firm will also provide financing to the company that is buying it (known as”strategy finance”).
M&A starts with an evaluation of the target. This includes financial reports along with business plans, management plans, and any other relevant information. This process, known as valuation, may be carried out by the acquirer’s firm or consultants. Typically, the company that conducts valuation must take into account more than just financial data, such as culture fit and other factors that will impact success of the deal.
The most common reason for a company to conduct a merger or acquisition is to grow. The size of the business increases its bargaining power and lowers costs. Another reason to diversify is that it helps a business to withstand cyclical downturns or provide more stable revenue. Additionally, some companies buy competitors to solidify their position on the market and eliminate any potential threats. This is referred to as defensive M&A.