The Essence Of “M&A”?
So, what is a merger and acquisition? “M&A” deals are a set of measures aimed at combining two or more companies into one corporation with a single governing body, which is accompanied by the transfer of control over business management from one company to another. M&A transactions are a special type of investment based on the principles of voluntary consent of all participants in the process and mutual benefit. Such a phenomenon as mergers and acquisitions arose as a result of the application of the world experience of corporate management in the field of company restructuring.
Effectiveness to protect ownership of companies
In the theory of international law, a broader classification of these processes has been created. M&A transactions take place according to the following scenarios:
Friendly Merger Of Companies
It happens when company leaders come to a mutual decision that by combining capital and resources, it will be easier for everyone to build a business and work in a highly competitive environment. The merger of companies implies the elimination of each individual participant in the merger procedure and the registration of a completely new legal entity, but with the old management, property, rights, obligations and other resources. That is, a prerequisite for a merger transaction is the emergence of a completely new legal entity, which will take control and management of all assets and liabilities of all companies – constituent parts. The merger process can be demonstrated in the form of a formula: if company A merges with companies B and C, then as a result a new company D appears on the market (D = A + B + C), and all the others are liquidated.
Friendly Takeover Of Companies
This process can be defined as the taking of one company by another under its control, its management with the acquisition of partial ownership of it. At the same time, all participants remain to act in their previous economic and legal forms. The takeover of a company is carried out without liquidation or reorganization procedures of participants as subjects of entrepreneurial activity: when the investing company acquires a controlling stake in the invested company, thus obtaining corporate control without significant changes.
The merger of several companies, as a result of which one of them continues to exist, and the rest lose their independence and are liquidated with the transfer of all their rights and obligations to the organization to which they join (A = A + B + C). In fact, this is a procedure for buying or selling a ready-made business, by transferring capital to a certain legal entity, on the basis of which it is planned to create a new organization with the further liquidation of all other participants. Whichever method of pooling capital would not be chosen, the main thing is that any procedure takes place only if the management team and shareholders support this transaction.
Advantages And Disadvantages Of M&A
As a result of the takeover from the new company:
- Positions in the market are growing due to entering new regions (in the event that it is absorbed by legal entities from other regions), the range of services and the client base are increasing.
- There is a combination of technology, personnel and resources, which positively affects the business.
- There is a need for stricter control over the actions of the acquired companies.
- However, the takeover process also has disadvantages:
- Conflicts often arise among founders;
- High costs for the implementation of the procedure;
- Loss of profitable customers and quality of service;
- There is a risk of qualified employees leaving, a change in the internal corporate culture.