Mergers and acquisitions M&A: Merger has been variously defined as any combination or the joining together of two or more firms. Acquisition on the other hand is the outright purchase of one company of a controlling interest in the share capital of another company.
Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations or their operating units are transferred or combined. As an aspect of strategic management, M&A can allow enterprises to grow, shrink, and change the nature of their business or competitive position.
From a legal point of view, a merger is a legal consolidation of two entities into one entity, whereas an acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets.
Weston and Brigham(1974) use the term Merger to mean any combination that forms one economic unit from two or more previous ones. They recognized that their are legal distinctions between the various ways combination can occur but placed their emphasis on fundermental business and financial aspects of mergers and acquisitions.
Philippatos(1973) prefers to use the term Mergers and acquisitions interchangeably by interpreting them as the transfer of the control of business activity from one corporation to another. He did not however, forget the legal distinction between the two terms though he adopted his method purely for convenience.
In view of Hampton (1986) acquisition as a forn of external growth refers to the taking over of assets of one company by another. Where a combination of two or more business occurs in which only one of the corporation survives, the term merger is applied. The other company ceases to exist,, and its assets and, possibly, debt are taken over by the surviving firm.
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Types of Mergers and Acquisitions
There are different types of mergers and acquisitions, but we will discuss the four most important.
1. Horizontal
This is the joining of two firms in the same area of business. In other words, firms producing the same product for the same market(competitors) merge.
2. Vertical
This is the joining of two firms involved in different stages of the production or distribution of the same product. For instance one firm acquires either a supplier or customer firm -a supplier customer relationship exists.
3. Conglomerate
A conglomerate is a firm that has achieved external growth through a number of mergers of companies whose business were not related either horizontal or vertical.
4. Congeneric
The term congeneric means allied in nature and action. Thus congeneric mergers and acquisition involves related enterprises, but not producers of the Same product(horizontal) or firm in a producer supplier relationship (vertical).
A merger may be accompanied by the complete acquisition of one company’s shares by another either for cash or for shares in the acquiring company or a
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