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Charles A. Jaffe

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M&A

 

M&A (mergers & acquisitions) is a field of corporate finance in which corporations are acquiring other companies or are merging in between. Theoretically it doesn’t sound very impressive, but in reality M&A market is so huge that has very important role in global financial markets. A huge industry of investment banking services is based on M&A deals and consulting. 

 

M&A became especially important in last decades when consolidation of the companies to conglomerates got acceleration. There are only two ways for company to grow: organic growth or through M&A. Organic grow is when company is growing without any acquisitions, slowly gets larger market share or grows together with the market. But M&A way is completely different: company does everything faster by acquiring competitors or other related companies. Of course to acquire some corporation free cash is needed and it has to be spent for this goal.

 

M&A may be executed by two types of deal: acquisition or merger. Acquisitions are more common because are easier to implement and the buying firm gets the full control (in most cases) of the acquired firm. Acquisitions require a lot of cash, and if a target is very large then better solution can be a merger when the deal is paid by own shares. There are two types of acquisition: friendly takeover or hostile takeover.

 

M&A market is very cyclical and the boom of M&A starts during economical upturn when stock markets are high and companies are generating more cash flow. When economies are going in recessions, M&A deals becomes rear and everybody is waiting for better times.

 

Theoretical driver of all M&A market is synergy. That’s why the entire consolidation boom had boosted few decades ago. In a very high competition every cost matter and consolidation provides for companies some efficiency in synergy form. However, ar lot of M&A deals do not provide any synergy and are implemented only to satisfy ambitions of the management or some other hidden reasons.

 

 






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