International Merger and Acquisition (M&A)

In today's competitive business scenario it is very common for companies to combine their resources for improving their efficiencies and ultimately profit margins. This is termed Merger and Acquisition. However, both the terms have different meanings although they serve the same purpose.

Mergers

In the case of a merger, two companies agree to coalesce their forces to become one entity.  Such unions have a synergistic effect and the new entity performs better than any of the individual companies. Such a strategy helps companies survive tough market conditions.

Different forms of Mergers

Horizontal Merger

When two companies are market competitors in terms of types of services or products they trade, they opt for a Horizontal Merger for congregating their resources to improve efficiencies.

Vertical Merger

When companies form a part of the same supply line (for example, a retailing company of a particular product joins and a company supplying raw material utilised for the production of the particular item) join forces together, it is termed as Vertical Merger-

Market-extension Merger

Companies that deal in the same product or service but have different markets can improve their market outreach and services as compared to their capabilities through Market-extension merger.

Product-extension Merger

Companies that operate in the same market and sells services or goods that are somewhat related can do a Product-extension merger to improve their product lines.

Conglomerate Merger

There is an instance when companies involved in totally different businesses agrees to come together, often to take advantage of their capabilities, market outreach etc. These are called Conglomerate mergers.

Acquisitions

In the case of Acquisition, a company purchases a targeted company thereby culminating the resources of the targeted company into their resources. This help is improving efficiencies and further profits of the targeted company can be enjoyed by the purchaser.

Different types of Acquisitions

Horizontal Acquisition

When a company doing business is a particular product or services in a particular market acquires another company doing business in the same type of product or services in the same market, it is termed as Horizontal Acquisition.

Vertical Acquisition

This takes place when a business acquires another business that is operating in the same supply line. For example - a business producing a particular item buys out another business that is dealing in retailing of the particular product

Congeneric Acquisition

This term is coined when one business purchases another business and both have some commonality  (maybe in the technology they use or retailing channels they operate) but does not have the same activities related to their production line. 

Conglomerate Acquisition

For diversification and increasing the number of revenue streams, a company that has a specific business can acquire another company that operates in a different line of business.

Merger and Acquisition (M&A)

Merger and Acquisition offer various scopes to the companies, especially when the market is very competitive and competitors are aggressive.

Scopes of Merger and Acquisition (M&A)

Improvement in the performance of the new entity => By combining resources and strategies, sharing markets, improving product line etc, the new entity improves its performance.

Prevents duplication thereby save resources => When two companies come together, both will have some process in common. One of the entity can retain these processes and the other can just avail services thereby minimise wastage of resources and improve productive timings.

New technologies and expertise can be shared or obtained  => This helps to improve efficiencies. Further, its saves time that would have been required for such developments.

Hence, Merger and Acquisition enhances efficiencies and increases profitability of organisations formed through the combination of resources of individual companies.