The merger and acquisition (M&A), market is a vital part of the growth strategy of many public companies. Large public companies with excess cash often seek out opportunities to acquire other companies in order to achieve organic growth. In the majority of cases, M&A involves two companies in the same industry and at a similar level of the supply chain working together to create value.
In general, a company may buy another for cash, stock or even debt. Sometimes the investment bank involved in the sale of one company may also provide financing to the acquiring company (known as”strategy financing”).
M&A begins with an evaluation of the target, which includes financial reports including business plans, management plans, as well as any other pertinent information. This process is called valuation and is carried out by the acquirer’s company or external consultants. Typically, the business performing valuation must consider more than only financial data, such as the fit of its culture and other factors which will affect the outcome m&a market state of the deal.
The most common reason to conduct a merger or acquisition is to boost growth. In addition, increasing the size of an organization gives it economies of scale, which decreases operating costs and improves bargaining power with suppliers of raw materials, technologies or services. Diversification is another way to increase a company’s capacity to weather downturns in the economy or to earn steady income. Additionally, some companies buy competitors to strengthen their position in the market and remove potential threats. This is often referred to as defensive M&A.