The term Mergers and Acquisitions, M&A for short, describes all processes in connection with the purchase and merger of companies or parts of companies.
If the buyer is a business itself and has no other intentions, a purchased business is integrated either quickly or gradually. One speaks of an acquisition when it is clear that the buyer will take the lead in the transaction and later make the essential decisions. Usually this is the larger of the two companies. The term takeover is a bit disrespectful as it clearly expresses who the part is taken over.
The term merger is intended to express that the two companies that come together see each other as partners and also want to jointly make the pending decisions within the newly created legal entity after the transaction. A merger is the rule when the two companies are roughly the same size. A merger is also used when a larger company buys a smaller one but wants to signal a partnership approach.
A reversed takeover occurs rarely. Here a financially strong company takes over a smaller company, which, however, is so attractive in terms of name, ideas and management that in the end the big buyer is absorbed in the small property or even disappears in it. Such transactions are initiated by a corporation and are a matter for top management. This person, usually the president of the executive board or the board of directors, naturally looks around and inquiries are made. Before the willingness to transact, the addressees sign a confidentiality agreement without knowing what it is about. Those who violate them expose themselves to high penalties.
Soon the parties will be calling in specialized brokers, so-called M&A boutiques. These are freelance finance brokers, specialized firms that can evaluate companies, or teams that belong to an investment bank. They help with the valuation and with their information they create a real market for mergers and acquisitions. Since financing is also required in the course of the transactions, specialists for corporate finance are called in.
There are many business reasons for mergers and acquisitions. Succession planning is an important reason for smaller companies to offer themselves to buy. Small businesses are often in a growth phase but cannot finance it themselves. Even then, the sale to a larger company offers a guarantee that the growth ideas can be realized. Managers of large companies often cite synergies as an argument, but later on there is often a lack of consistency in internal implementation to really bring them to bear. Competitors, especially if they serve different geographical areas, are looking to achieve certain rationalization options with joint production. The common basis of all of these reasons is the pursuit of opportunities to increase in value.
Two phases can be distinguished:
1. The decision-making process involves clarifying these issues: evaluation of a takeover, determination of alternatives, definition of framework conditions (for example: time of implementation, price limit).
2. The integration process is about the creation of a cooperative atmosphere, the definition of responsibilities, the integration itself and the transfer and use of skills in the new company.
Unfortunately, the second phase is often not carried out to the end and there are company acquisitions and mergers that only disappoint in the end. Occasionally, after years, it becomes clear that the bosses who tipped the scales in the first phase were too guided by the personal goals of the Empire Building and had paid too much.
Scientists are always amazed by the phenomenon of waves of mergers and acquisitions. The fact that acquisitions are partly paid for with shares plays a role here. It is easier to buy companies if a company can offer shares with a high price in the course of a bull market. Of course, to do this, it must already dispose of these shares, and for these reasons, too, early share buybacks are carried out. Stocks are the currency with which more and more company acquisitions and mergers are “paid”.
In terms of transaction volume in 2000, expressed in billions of USD (shown in brackets), these are the seven largest investment banks in the business of mergers and acquisitions:
1. Morgan Stanley Dean Witter (1000)
2. Goldman Sachs (900), 3. Credit Suisse First Boston (800)
4. Salomon Smith Barney (700)
5. JP Morgan Chase (600)
6. MeriII Lynch (500)
7. UBS Warburg (400)
11th Dresdner Kleinwort (DKIB)
13. Deutsche Bank