subject: An Introduction To Mergers And Acquisitions [print this page] M&A stands for Mergers and Acquisitions and is the area of corporate strategy, finance and management of buying, selling and dividing businesses.
There are some important distinctions between mergers and acquisitions. Put simply, an acquisition is when one company purchases another while a merger is where two or more companies combine. An acquisition is where a company buys another and absorbs them within their business. The acquirer may take the assets of the company they have bought within their own company, effectively meaning it no longer exists. In other circumstances they might still operate independently to some extent by keeping their name and operating as a separate business. In these cases consumers may not notice a difference. Mergers occur when companies join together to form one, larger company. They are in these cases equal partners rather than one owning the other. Neither company will continue to exist independently with a new company formed that includes the assets of both.
There are many famous examples of both mergers and acquisitions. The bank, Santander, is a well-known example of an acquisition where one company was fully absorbed into another. They bought Abbey (formerly Abbey National), who became part of the Santander brand. Abbey customers became Santander customers and Abbey seized to exists. BMWs acquisition of Land Rover is an example of an acquisition where both companies still exist in name. BMW now owns Land Rover even though they operate separately in many ways. The joining of forces of the two banks, Lloyds and TSB, is a good example of a merger. They were two individual banks who merger to form one company, now called Lloyds TSB. They are equal partners and neither owns the other.
Although there are rare occasions when it is the other way around, acquisitions usually occur when a larger company purchases a smaller one. They see the success another company is having or potential in their business model or clients and look to take advantage of this. Mergers generally occur where businesses in the same industry believe they will work better as one, possibly due to saving costs or being able to offer a better service as a combined company.
Although not all acquisitions and mergers are success, there are many reasons why they can work well. A reduction in overheads is one of these. They may be able to share premises saving on rents. It can also mean a reduction in the number of employees required. Within certain departments smaller teams may be able to work across both companies without having to grow in size. Sometimes a company will acquire another simply to get the business of their clients. Products and services can, in many cases complement each other and this can be a reason for a merger. They may cover different areas of the same industry and being able to offer more services can bring in customers by offering a more all-encompassing service.
Some very large companies regularly acquire others to ensure they can offer services in many areas around their particular industry. Google, Microsoft and News International are all examples of this. They are constantly acquiring existing businesses therefore growing their brand.
