M&A

Mergers and acquisitions (M&A) are business transactions in which the ownership of companies,
other business organizations, or their operating units are transferred to or consolidated with another
company or business organization. As an aspect of strategic management, M&A can allow
enterprises to grow or downsize, and change the nature of their business or competitive position.

Technically, a merger is a legal consolidation of two business entities into one, whereas an acquisition
occurs when one entity takes ownership of another entity's share capital, equity interests or assets. A
deal may be euphemistically called a merger of equals if both CEOs agree that joining together is in
the best interest of both of their companies. From a legal and financial point of view, both mergers
and acquisitions generally result in the consolidation of assets and liabilities under one entity, and
the distinction between the two is not always clear.

In most countries, mergers and acquisitions must comply with competition law. For example, in U.S.
antitrust law, the Clayton Act outlaws any merger or acquisition that may "substantially lessen
competition" or "tend to create a monopoly", and the Hart–Scott–Rodino Act requires companies to
get "pre-clearance" from either the Federal Trade Commission or the U.S. Department of Justice's
Antitrust Division for all mergers or acquisitions over a certain size.

Acquisition

An acquisition/takeover is the purchase of one business or company by another company or other

business entity. Specific acquisition targets can be identified through myriad avenues including
market research, trade expos, sent up from internal business units, or supply chain analysis.[1] Such
purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity.

A consolidation/amalgamation occurs when two companies combine to form a new enterprise

altogether, and neither of the previous companies remains 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. Some public companies rely on
acquisitions as an important value creation strategy.[2] An additional dimension or categorization
consists of whether an acquisition is friendly or hostile.[3]

Achieving acquisition success has proven to be very difficult, while various studies have shown that
50% of acquisitions were unsuccessful.[4] "Serial acquirers" appear to be more successful with M&A
than companies who make an acquisition only occasionally (see Douma & Schreuder, 2013, chapter
13). The new forms of buy out created since the crisis are based on serial type acquisitions known as
an ECO Buyout which is a co-community ownership buy out and the new generation buy outs of the
MIBO (Management Involved or Management & Institution Buy Out) and MEIBO (Management &
Employee Involved Buy Out).
Whether a purchase is perceived as being a "friendly" one or "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 agreements.[5] 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 acquirer secures endorsement of the transaction from
the board of the acquiree company. This usually requires an improvement in the terms of 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 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 shareholders of the acquiring company are most likely to experience a
negative wealth effect.[6] 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:

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 and corporate 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.[7] 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:

Improper documentation and changing implicit knowledge makes it difficult to share information
during acquisition.

For acquired firm symbolic and cultural independence which is the base of technology and
capabilities are more important than administrative independence.

Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high
performing.

Management of executives from acquired firm is critical in terms of promotions and pay incentives to
utilize their talent and value their expertise.

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.

An increase in acquisitions in the global business environment requires enterprises to evaluate the
key stake holders of acquisition very carefully before implementation. It is imperative for the acquirer
to understand this relationship and apply it to its advantage. Employee retention is possible only
when resources are exchanged and managed without affecting their independence.