Mergers and Acquisitions
Mergers and acquisitions are defined as the process of combining two different companies to form a new company or new business entity. Mergers and acquisitions are abbreviated as M&A. M&A is one of the most essential components of corporate strategy and corporate finance and usually done by the companies to expand their operations to improve their profitability in the business.
Types of Mergers and Acquisitions (M&A's)
- Horizontal mergers
- Vertical mergers
- Conglomerate mergers
- Market-extension mergers
- Product-extension mergers
Horizontal merger
Two companies that deals with the same product lines and in direct competition. This merger is termed as horizontal merger.
Vertical merger
The client and customer merge together is termed as vertical merger.
Conglomerate merger
Two companies that operate in different industries. This merger is termed as conglomerate merger.
Market -extension merger
Two different companies that are selling the same product lines in different markets is termed as market-extension merger.
Product -extension merger
Two different companies that are selling different product lines in the same market is termed as product-extension merger.
Mergers and acquisitions goals
The defined motives in mergers and acquisitions deals are as follows:
- Increase in market share
- Increase in revenues
- Cross selling
- Synergy
- Geographical diversification
- Economies of scale
- Sharing or transferring of resources
- Vertical integration
- Access to New Customer Base
- Stopping Opportunities for Key Competitor
- Elimination of Competition
- Increase in Breadth and Depth of Product Line
- Complimentary Skill Sets etc.
Cross-border mergers and acquisitions
Due to globalization, the cross-border M&A's has rapidly increased in the market place. In the year 1996, there was more than 2000 cross border deals worth of approximately $256 billion. The backlog in this type of deal is lack of experienced people to handle these transactions in a prompt way and also due to its own complications.
Mergers and acquisitions (M&A's) deals
Top 10 M&A deals worldwide by value (in million USD) since 2000.
| Rank | Year | Purchaser | Purchased | Transaction Value |
| 1 | 2000 | Fusion: America Online Inc. (AOL) | Time Warner | 164,747 |
| 2 | 2007 | Schwebend: Barclays Plc | ABN-AMRO Holding NV | 90,839 |
| 3 | 2000 | Glaxo Wellcome Plc. | SmithKline Beecham Plc | 75,961 |
| 4 | 2004 | Royal Dutch Petroleum Co. | Shell Transport & Trading Co | 74,559 |
| 5 | 2006 | AT&T Inc. | BellSouth Corporation | 72,671 |
| 6 | 2001 | Comcast Corporation | AT&T Broadband & Internet Svcs | 72,041 |
| 7 | 2004 | Sanofi-Synthelabo SA | Aventis SA | 60,243 |
| 8 | 2000 | Spin-off: Nortel Networks Corporation | Pharmacia Corporation | 59,974 |
| 9 | 2002 | Pfizer Inc. | Bank One Corp | 59,515 |
| 10 | 2004 | JP Morgan Chase & Co | 400 | 58,761 |
Globalization and market saturation have rapidly increased the intensity of competition in today's business environment. The best possible way to conduct business is through mergers and acquisitions route to capture and increase market share. M&A is recognized as a valuable tool to enhance your business and to deliver shareholder value by means of improving the company's revenues.
