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.