Fundamentals of Mergers and Acquisitions

Mergers and Acquisitions (M&A) represent corporate strategies dealing with buying, selling, and combining companies. A merger equals two companies becoming one, while an acquisition involves one company taking over another.

Companies pursue M&A for various strategic reasons: to expand market share, diversify products, reduce competition, or achieve synergies. Synergies occur when combined entities perform better together than separately, reducing costs or increasing revenue.

M&A can be friendly or hostile. Friendly transactions are agreed upon by both companies. Hostile takeovers occur without target company's consent, often by buying a majority of its stock shares.

Due diligence is critical in M&A, involving a comprehensive appraisal of a business by a prospective buyer. It aims to confirm financials, assets, liabilities, and evaluate risks. It's key for determining the target's valuation.

M&A activities are heavily regulated to prevent monopolies and protect consumer interests. Deals often require approval from government entities, such as the Federal Trade Commission in the United States or the European Commission in the EU.

Post-merger integration is the complex process of combining and restructuring companies post-acquisition. It's crucial for realizing expected synergies, retaining talent, merging cultures, and integrating systems and processes.

Despite potential benefits, many M&A fail. AOL's acquisition of Time Warner is a classic example, largely deemed disastrous due to culture clashes and the burst of the dot-com bubble.