Acquisition and merger of companies: examples. Mergers and acquisitions

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Often, acquisitions and mergers are used to structure companies. These are operations of an economic and legal nature, designed to combine several organizations into a single corporate structure. The owners of the new business unit are persons who have a controlling stake at their disposal. The purpose of the event is to improve the efficiency of capital.

What are the main pros and cons?

In an effort to improve their financial results, enterprises are trying to unite. Joint management significantly increases the efficiency of organizations. Mergers and acquisitions in Russia, as practice shows, provide an opportunity to adapt to the progressive system of the economy and gain additional privileges in the competitive struggle.

The benefits of merging are obvious:

• reducing time to achieve a positive effect;
• optimization of the tax base;
• geographic expansion of business;
• gain control of tangible intangible assets;
• acquisition of working capital directly at previously underestimated cost;
• instant purchase of a specific market sector.

There are also some disadvantages:

• reasonably high costs regarding the payment of pen alties;
• significant difficulties in having companies in different industries;
• possible difficulties in interacting with new employees;
• In fact, the deal may not be very profitable.

Features of ongoing processes

The ongoing acquisitions and mergers have their own specifics. With a voluntary merger of companies, it is necessary to form a new legal entity. If one enterprise joins another, then the main one retains its essence as a subject. All rights and obligations of subsidiaries pass to him.

Merge is the process of combining two or more legal entities on a voluntary basis. After registration of all documents, a new economic entity begins to function. The combination can take place in two scenarios.

1. Restructuring of companies is carried out with complete liquidation. The formed entity acquires the assets and liabilities of the incorporated entities.
2. When merging, a partial transfer of the rights of existing entities on the rights of an investment deposit is carried out. Participants in this case maintain administrative and economic integrity.

Under a company takeoverrefers to the process by which one company buys out another. After registration, she begins to fully control her activities. At the same time, the dominant firm acquires from 30 percent of the authorized capital of the second legal entity.

Classification of join procedures

M&A deals can be divided according to different principles. The type of merger is chosen depending on the conditions established in the market environment, as well as on the potential opportunities that economic companies have.

The table shows the main types of joins.

View	Features
Horizontal	The process integrates organizations engaged in the same activity or with a similar technical and technological structure.
Vertical	Connect businesses directly across industries. This is done to control the previous stages of the production process.
Conglomerate	The operation of combining enterprises in different industries, while they have no technological or production similarity.
Ancestral	Merging companies developing the same product. For example, a combination of enterprises for the manufacture of mobile devices andsoftware.

Also, mergers and acquisitions are classified according to national and cultural characteristics. If the organizations being restructured are located on the territory of one state, then they are considered national. Their activities do not go beyond the boundaries within which they conduct it. Transnational is the union of entities from different countries. Their number can be unlimited. Multinational corporations are common these days.

Fundamentals of positive effect

In order for the takeover and merger to be positive, some factors must be taken into account:

• determining the optimal form of union;
• speed of connection to the process of staff of middle and senior managers;
• projected capital for integration;
• transaction procedure;
• choosing the primary representative for future relationships.

During the operation, it is necessary to understand from the very beginning that obtaining a positive result when combining organizations should lead to an increase in profits. At the entire stage of restructuring, mistakes made should be eliminated in time. The ultimate goal is not only to have a synergistic effect, but to maintain it for a long time.

Preparing for M&A process

At the initial stage, the main tasks are set and ways to solve them are determined. It is required to understand whether the goals set canbe achieved by alternative means. To do this, it is necessary to carry out procedures to increase internal capacity, develop suitable marketing strategies and other measures that can bring the planned result closer.

After that, a suitable company is searched for to merge. Preparation directly for the deal takes place in three stages.

1. The scope of the enterprise is being studied: growth dynamics, possible distribution of potential, and the impact of external factors are being assessed. The first step is to consider actual assets and liabilities.
2. They analyze their own capabilities. In any case, the company must conduct an unbiased self-assessment. Using the data obtained, you can understand what criteria should be followed when choosing an organization.
3. Possible competitors are being explored. You can feel all the positive aspects of the unification if you carefully study the potential of rivals. By evaluating them, it is easier to determine the strategic direction.

Analysis of the effectiveness of the completed transaction

There is an opinion that the merger of companies will be a tremendous success if a company from a market sector that is progressively developing is chosen as an opponent. However, this approach is not correct. The final evaluation of mergers and acquisitions is based on various studies:

• analysis of the balance of income and expenditure transactions;
• determining the benefits of integration for all parties;
• taking into account the features of the union;
• Identification of the main problems in the field of the tax base, personnel and legal restrictions.

Possible downsides

Transformations with economic structures can have not only positive, but also negative effects. Studies have shown completely different results. Analysts concluded that negative moments arise for a number of reasons related to each other:

• erroneous assessment of the capabilities of the merging company;
• misuse of financial resources needed for integration;
• illiterate steps at the stage of combination.

Practical application

In a period of economic instability in the state, the best way out of the situation is to create an alliance. Such measures will help reduce the value of assets and unite efforts to survive during the crisis. There are quite a few examples of mergers and acquisitions, but the option with the American company LHC Group deserves special attention.

The represented organization managed to double its own value within six months. And this is in the context of the financial crisis. The use of an outsourcing scheme made it possible to increase the structure by 8 economic units in just six months. The financial benefit won made it possible to significantly expand the scope of services. The company was able to find opportunities for progressive development through investment, despite negative external factors.

Bas a conclusion

On the Russian market of mergers and acquisitions, the total amount of transactions made decreased by an average of 29 percent. This is due to the decrease in the volume of operations performed. The share of the Russian Federation in the world market was approximately 1.3 percent. Over the past decade, such low rates have not been observed. As for foreign investments, their volume increased by 40 percent.