Mergers and acquisitions are common terms used to refer to the amalgamation of companies. A merger results when two companies come together to form a single company. Mergers are similar to acquisitions, excluding that in mergers, existing stockholders of both companies maintain a shared interest in the new enlarged entity. The shareholding pattern may vary, depending on the valuation of companies concerned.
When one company buys out the controlling or considerable portion of another company's stock, it is termed as acquisitions. The buyer company takes over the other company. It creates an uneven balance of ownership. No new company is formed in case of acquisitions.
Mergers and acquisitions may be undertaken for several reasons, some of which are advantageous to shareholders while some are not. At times, such deals may be undertaken to save on taxes. The accumulated losses of the target company could be set off against profits of the company that is taking over, resulting in significant tax savings.
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Another reason for a merger or acquisitions is that such deals often help to expand the market share. Most large corporations use this strategy to improve business. Mergers and acquisitions may also be undertaken to combine two companies that make different, but complementary, products.
Plans and negotiations for mergers and acquisitions are generally kept confidential until the deal is almost finalized. Generally, investment bankers, consultants and lawyers specializing in this field, process such deals. Frequently, the services of another type of specialists known as 'interim managers' may be utilized also, to smooth out the process.
All mergers and acquisitions are believed to be done for the benefit of the stockholders of both companies. Actually this may not be always true. Those who have stocks are advised to cautiously study proposals for mergers and acquisitions before accepting the deal.
Merger and acquisition processes will undoubtedly change in the near future, as dynamic technologies permit for development of a more efficient marketplace. This manages to protect the privacy of companies involved in the deal and at the same time linking up perfect candidates for mergers and acquisitions.
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