Merger acquisition
- Iter Advisors
Contents
The business market is evolving (very) rapidly, and one of the major strategic levers for a sufficiently established company seeking growth is mergers and acquisitions. This process enables a company to strengthen itself, expand its market or improve its competitiveness through the acquisition of another entity or a merger between two structures.
However, there's much more to a merger and acquisition than the transfer of ownership or the union of two companies. Simple on paper, complicated in practice! It involves an in-depth analysis of finances, potential synergies and regulatory aspects. The impact can be considerable, both in terms of economic development and internal transformation. A well-executed merger can offer significant strategic advantages, but an ill-prepared operation can lead to major complications.
What is a merger & acquisition? Definition and key concepts
Definition of M&A
A merger-acquisition (also known as a FUSAQ in financial jargon) is a legal-financial operation in which two companies combine their activities, or one takes control of the other. It is a strategic move designed to strengthen a company in its existing market or to penetrate a new one.
In a merger, two companies join forces to form a single entity. In an acquisition, one company buys another and takes full control.
In the business world, these operations are frequent for a number of reasons: seeking economies of scale, access to new technologies, increasing market share or diversifying activities.
What are the different types of M&A?
There are many different types of M&A, each with its own specific strategic objectives. Understanding these distinctions is essential to choosing the approach best suited to your company's needs.
Merger-absorption
In a merger, one company absorbs another. The absorbed company ceases to legally exist, and all its assets and liabilities are transferred to the absorbing company.
The merger-creation
Two companies merge to create a new, independent entity, involving the dissolution of the two original structures.
The majority acquisition
The buyer acquires more than 50% of another company's capital, thereby gaining decision-making power.
Minority acquisitions
The acquirer acquires a minority stake in a company without taking full control.
Horizontal merging
A horizontal merger occurs when one company acquires another in the same business sector.
Vertical merging
A vertical merger occurs when a company takes over a supplier or distributor in its production chain.
Conglomerate merger
Conglomerate mergers bring together companies operating in completely different sectors.
Reverse fusion
A reverse merger occurs when a private company buys out a public company to become listed on the stock exchange without going through the traditional IPO process.
What are the advantages of a merger and acquisition?
- Rapid company growth: Enables access to new markets, expansion of product range or integration of innovative technologies.
- Economies of scale: reduce production costs and optimize the supply chain.
- Diversification: Reducing dependence on a specific market or product.
- Restriction of competition: Elimination of a direct competitor and increase in pricing power.
- Entering the international market: Acquire a local company to avoid creating operations from scratch.
- Tax benefits: tax reductions, accelerated depreciation or tax optimization.
How does a merger and acquisition work? The key stages
Identification and strategic analysis
The first step in an M&A process is to identify the strategic objectives of the operation.
Negotiations and due diligence
Once the target has been identified, the negotiations begin.
The agreement and the structuring of the operation
Once negotiations have been finalized, theagreement is formalized.
Post-merger integration
Integration is often the most complex phase of a merger and acquisition.
Why do companies carry out mergers and acquisitions?
Mergers and acquisitions are powerful strategic tools enabling companies to strengthen their competitive position.
What are the risks and drawbacks of a merger and acquisition?
- Cultural integration problems: risk of conflict and lower productivity.
- Financial and legal risks: A poor valuation of the target can lead to significant financial losses.
- Impact on employees: Risk of redundancies and restructuring.
- Excessive debt: Some acquisitions are financed by debt, which can weaken the company.
How are mergers and acquisitions regulated?
What are the legal requirements?
Mergers and acquisitions are subject to strict regulations, particularly in terms of competition law.
What are the tax aspects of an M&A deal?
Tax aspects vary from one jurisdiction to another.
Conclusion
Mergers and acquisitions are powerful levers for company growth, but they require careful planning and expert management.