Merger" redirects here. For other uses, see Merge (disambiguation).

For other uses of "acquisition", see Acquisition (disambiguation). For The Sopranos episode, see Mergers and Acquisitions (The Sopranos).

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Clawback

Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.
Contents
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1 Acquisition

1.1 Distinction between mergers and acquisitions

2 Business valuation 3 Financing M&A

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3.1 Cash 3.2 Stock 3.3 Financing options

4 Specialist M&A advisory firms 5 Motives 6 Different Types of M&A

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6.1 Types of M&A by functional roles in market 6.2 Arm's length mergers 6.3 Strategic Mergers

7 M&A research and statistics for acquired organizations

8 Brand considerations 9 History of M&A

9.1 The Great Merger Movement: 1895-1905

9.1.1 Short-run factors 9.1.2 Long-run factors

9.2 Merger waves

9.2.1 M&A objectives in more recent merger waves

10 Cross-border M&A 11 M&A failure 12 Major M&A

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12.1 1990s 12.2 2000s

13 M&A in popular culture 14 See also 15 References 16 Further reading

[edit]Acquisition Main article: Takeover An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on a public stock market. An additional dimension or categorization consists of whether an acquisition is friendly or hostile. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% [1] of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions [2] influencing its outcome. "Serial acquirers" appear to be more successful with M&A than companies who only make an acquisition occasionally (see Douma & Schreuder, 2013, chapter 13).
Look up merger in Wiktionary, the free dictionary.

Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees and shareholders. It is normal for M&A deal communications to take place in a so-called

"confidentiality bubble" wherein the flow of information is restricted pursuant to confidentiality [3] agreements. In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, ultimately become "friendly", as the acquiror secures endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the termsof the offer and/or through negotiation. "Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed [4] shell company, usually one with no business and limited assets. The combined evidence suggests that the shareholders of acquired firms realize significant positive "abnormal returns" while shareholder of the acquiring company are most likely to experience a negative wealth effect. The overall net effect of M&A transactions appears to be positive: almost all studies report positive returns for the investors in the combined buyer and target firms. This implies that M&A creates economic value, presumably by transferring assets to management teams that operate them more efficiently (see Douma & Schreuder, 2013, chapter 13). There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications: This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2008) The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment. The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.

The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where one company splits into two, generating a second company which may or may not become separately listed on a stock exchange. As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. Extracting technological benefits during and after acquisition is ever challenging issue because of organizational differences. Based on the content analysis of seven interviews authors concluded five following components for their grounded model of acquisition: This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (July 2012) 1. Improper documentation and changing implicit knowledge makes it difficult to share information during acquisition. 2. For acquired firm symbolic and cultural independence which is the base of technology and capabilities are more important than administrative independence. 3. Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high performing. 4. Management of executives from acquired firm is critical in terms of promotions and pay incentives to utilize their talent and value their expertise. 5. Transfer of technologies and capabilities are most difficult task to manage because of complications of acquisition implementation. The risk of losing implicit knowledge is always associated with the fast pace acquisition. Preservation of tacit knowledge, employees and documentation are often difficult to achieve during and after acquisition. Strategic management of all these resources is a very important factor for a successful acquisition. An increase in acquisitions in the global business environment requires enterprises to evaluate the key [citation needed] stake holders of acquisition very carefully before implementation. It is imperative for the [clarification needed] acquirer to understand this relationship and apply it to its advantage. Retention is only possible when resources are exchanged and managed without affecting their independence. [edit]Distinction
[clarification needed]

between mergers and acquisitions

The terms merger and acquisition mean slightly different things. The legal concept of a merger (with the resulting corporate mechanics, statutory merger or statutory consolidation, which have nothing to do with [clarification needed] the resulting power grab as between the management of the target and the acquirer ) is different from the business point of view of a "merger", which can be achieved independently of the corporate mechanics through various means such as "triangular merger", statutory merger, acquisition, etc. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an "acquisition". From a legal point of view, in an acquisition, the target company still exists as an independent legal entity, which is controlled by the acquirer.

In the pure sense of the term, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place. For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time. A purchase deal will also be called a "merger" when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an "acquisition".

Definition of 'Merger'
The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

Investopedia explains 'Merger'

Basically, when two companies become one. This decision is usually mutual between both firms.
Read more: http://www.investopedia.com/terms/m/merger.asp#ixzz2JNmdbQE4

Definition of 'Acquisition'
A corporate action in which a company buys most

, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.

Investopedia explains 'Acquisition'

Acquisitions can be either friendly or hostile. Friendly acquisitions occur when the target firm expresses its agreement to be acquired, whereas hostile acquisitions don't have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake. In either case, the acquiring company often offers a premium on the market price of the target company's shares in order to entice shareholders to sell. For example, News Corp.'s bid to acquire Dow Jones was equal to a 65% premium over the stock's market price.

Definition of 'Amalgamation'
The combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity. Rather, a completely new entity is formed to house the combined assets and liabilities of both companies.

Investopedia explains 'Amalgamation'

This sense of the term amalgamation has generally fallen out of popular use and the terms "merger" or "consolidation" are often used instead. Although companies may be merged or acquired using a variety of different techniques, the net effect is substantially the same from a lay perspective.

In general, amalgamation is the process of combining or uniting multiple entities into one form. Amalgamate and its derivatives may refer to: Metals and science In mining, amalgamation was historically used in the patio process and pan amalgamation to recover precious metals from ore by combining them with mercury. Amalgamation combines mercury and another element to create amalgam (chemistry), used in dentistry, chemistry, and mining In geology it refers to the creation of a stable continent or craton by the union of two continents, blocks or terranes Amalgamation (business), the merge or consolidation of companies Amalgamation, another name for a trade union, chiefly used in the United Kingdom

Amalgamation (politics), in geopolitics, refers to the joining of two or more administrative units Amalgamation (names), the strategy of naming something after a combination of existing names Amalgamation (fiction), the concept of creating an element in a work of fiction by combining existing things Amalgamation (race), a now largely archaic term for the interbreeding of people of different ethnicities and races Amalgamation (military unit), the consolidation of military units, usually traditional regiments, into a new unit carrying the lineage, history, traditions, and identity of both Amalgamation, an EP released by the band Pop Will Eat Itself in 1994 Free product with amalgamation, in mathematics, especially group theory, an important construction Amalgamated (1917 automobile), car manufactured by the Amalgamated Machinery Corp. Amalgamated (organization name) Amalgamated Broadcasting System, a short-lived American radio network during the 1930s Conflation, also known as "idiom amalgamation", the combination of two expressions

Amalgamation is a restructuring phenomenon in which two or more companies are liquidated and a new company is formed to acquire business. In simpler terms, it means that a new company is formed that buys the business of minimum two companies. The new company or the acquiring company is known as the amalgamated company. It acquires the assets and liabilities of the other companies known as amalgamating companies. Commonly, such companies are also referred as target companies or merging companies. Amalgamations are considered to be a safe route for sick units who want to save their existence. Many other companies facing possible bankruptcy also opt for amalgamations. Similarly, cash-rich firms that have lot of liquid assets but no profitable business opportunities aim for it as a long-term investment. The most challenging task in any amalgamation is to create a sense of co-operation among the employees of different amalgamating companies. Ultimately, the success of any venture depends upon people handling it. In India, mergers and amalgamations are used interchangeably in legal parlance. However, they are an entirely different accounting treatment. It is a complicated procedure involving lot of legal, tax, and accounting considerations Therefore, one need to be very careful while evaluating an amalgamation proposal. Tax treatment is an important aspect of amalgamation. According to the Income Tax Act, the amalgamating companies are not liable to pay the capital gain tax levied on them following their liquidation. The incidence of tax falls on the amalgamated company. Moreover, all expenses related to amalgamation are not taxdeductible.

Definition of 'Spinoff'
The creation of an independent company through the sale or distribution of new shares of an

existing business/division of a parent company. A spinoff is a type of divestiture.

Investopedia explains 'Spinoff'

Businesses wishing to 'streamline' their operations often sell less productive, or unrelated subsidiary businesses as spinoffs. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business.

a. A divestiture by a corporation of a division or subsidiary by issuing to stockholders shares in a new company set up to continue the operations of the division or subsidiary. b. The new company formed by such a divestiture.

A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares. In European law, the term 'joint-venture' (or joint undertaking) is an elusive legal concept, better defined under the rules of company law. In France, the term 'joint venture' is variously translated as'association d'entreprises', 'entreprise conjointe', 'coentreprise' or 'entreprise commune'. But generally, the term societe anonyme loosely covers all foreign collaborations. In Germany, 'joint venture' is better [1] represented as a 'combination of companies' (Konzern). With individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers". The venture can be for one specific project only - when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for one-time contracts. The JV is dissolved when that goal is reached. Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson, Penske Truck Leasing, Norampac, and Owens-Corning. A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits. Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary.

Definition of 'Joint Venture - JV'

The cooperation of two or more individuals or businesses in which each agrees to share profit,

loss and control in a specific enterprise.

Investopedia explains 'Joint Venture - JV'

Forming a joint venture is a good way for companies to partner without having to merge. JVs are typically taxed as a partnership.

A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise.

Definition of 'Strategic Alliance'

An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.

Investopedia explains 'Strategic Alliance'

For example, an oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes. A clothing retailer might form a strategic alliance with a single clothing manufacturer to ensure consistent quality and sizing. A major website could form a strategic alliance with an analytics company to improve its marketing efforts.

A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance [1] often involvestechnology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk.
Contents
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1 Types of strategic alliances 2 Stages of Alliance Formation 3 External links

4 Footnotes

[edit]Types

of strategic alliances

Various terms have been used to describe forms of strategic partnering. These include international coalitions (Porter and Fuller, 1986), strategic networks (Jarillo, 1988) and, most commonly, strategic alliances. Definitions are equally varied. An alliance may be seen as the joining of forces and resources, for a specified or indefinite period, to achieve a common objective. There are seven general areas in which profit can be made from building alliances. [edit]Stages
[2]

of Alliance Formation

A typical strategic alliance formation process involves these steps: Strategy Development: Strategy development involves studying the alliances feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy. Partner Assessment: Partner assessment involves analyzing a potential partners strengths and weaknesses, creating strategies for accommodating all partners management styles, preparing appropriate partner selection criteria, understanding a partners motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partners contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood. Alliance Operation: Alliance operations involves addressing senior managements commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance. Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

The advantages of strategic alliance include: 1. Allowing each partner to concentrate on activities that best match their capabilities. 2. Learning from partners & developing competences that may be more widely exploited elsewhere. 3. Adequate suitability of the resources & competencies of an organization for it to survive. There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances. Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Non-equity strategic alliance is an alliance in which two or more firms develop a contractualrelationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.

collaboration is working together to achieve a goal. It is a recursive process where two or more people or organizations work together to realize shared goals, (this is more than the intersection of common goals seen in co-operative ventures, but a deep, collective, determination to reach an identical [by whom?][original research?] [improper synthesis?] [3][4] objective ) for example, an intriguing endeavor that is creative in [5] nature by sharing knowledge, learning and building consensus. Most collaboration requires leadership, although the form of leadership can be social within [6] a decentralized and egalitariangroup. In particular, teams that work collaboratively can obtain greater [7] resources, recognition and reward when facing competition for finite resources. Collaboration is also present in opposing goals exhibiting the notion of adversarial collaboration, though this is not a common case for using the word. Structured methods of collaboration encourage introspection of behavior and communication. These methods specifically aim to increase the success of teams as they engage in collaborative problem solving. Forms, rubrics, charts and graphs are useful in these situations to objectively document personal traits with the goal of improving performance in current and future projects. Since the Second World War the term "Collaboration" acquired a very negative meaning as referring to persons and groups which help a foreign occupier of their countrydue to actual use by people in European countries who worked with and for the Nazi German occupiers. Linguistically, "collaboration" implies more or less equal partners who work togetherwhich is obviously not the case when one party is an army of occupation and the other are people of the occupied country living under the power of this army. In order to make a distinction, the more specific term Collaborationism is often used for this phenomenon of collaboration with an occupying army. However, there is no water-tight distinction; "Collaboration" and "Collaborator", as well as "Collaborationism" and "Collaborationist", are often used in this pejorative senseand even more so, the equivalent terms in French and other languages spoken in countries which experienced direct Nazi occupation.
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[2]

Definition of 'De-Merger'
A business strategy in which a single business is broken into components, either to operate on their own, to be sold or to be dissolved. A de-merger allows a large company, such as a conglomerate, to split off its various brands to invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business's core product line, or to create

separate legal entities to handle different operations.

Investopedia explains 'De-Merger'

For example, in 2001, British Telecom conducted a de-merger of its mobile phone operations, BT Wireless, in an attempt to boost the performance of its stock. British Telecom took this action because it was struggling under high debt levels from the wireless venture. Another example would be a utility that separates its business into two components: one to manage the utility's infrastructure assets and another to manage the delivery of energy to consumers.

Demerger is a form of corporate restructuring in which the entity's business operations are segregated [1] into one or more components. It is the converse of a merger or acquisition. A demerger can take place through a spin out by distributed or transferring the shares in a subsidiary holding the business to company shareholders carrying out the demerger. The demerger can also occur by transferring the relevant business to a new company or business to which then that company's [1] shareholders are issued shares of. Demergers can be undertaken for various business and non-business reasons, such as government [2] intervention, by way of anti-trust law, or through decartelization.