The term mergers and acquisitions (M&A) refers to the consolidation of companies or their major business assets through financial transactions between companies . A company may buy and absorb another company outright, merge with it to create a new company, acquire some or all of its major assets, make a takeover bid for its shares, or stage a hostile takeover. All are M&A activities.
The term M&A is also used to describe divisions of financial institutions that operate in this activity.
What is an acquisition?
The terms mergers and acquisitions are often used interchangeably, however, they have slightly different meanings .
When one company acquires another and establishes itself as the new owner, the purchase is called an acquisition .
On the other hand, a merger describes two companies, roughly the same size, joining forces to move forward as a single new entity , rather than remaining separately owned and operated. This action is known as a merger of equals. A buyout agreement will also be called a merger when both CEOs agree that the combination is in the best interests of both companies.
Hostile deals in which the target companies do not want to be acquired hong kong phone number data are always considered acquisitions . That is, a deal can be classified as a merger or acquisition based on whether the acquisition is friendly or hostile and how it is announced. M&A deals generate considerable profits for the investment banking industry, but not all M&A deals close.
What does an M&A professional do?
Supply offers
When closing deals, a M&A professional looks for potential buyers for their client (who is selling their company) or potential companies for their client to acquire (who wants to buy a company). They want to find target companies that meet their client’s criteria and financials.
Analysis
M&A professionals, especially those starting out in analyst roles, focus on analyzing how a merger or acquisition would affect a company’s finances . This job function includes revenue and expense analysis, financial forecasting, and modeling to show clients the potential outcomes of a deal.
Assessment
Valuation refers to determining the fair value of a company , or how much a company is worth. When valuing a business, M&A professionals look not only at the company's current finances, but also at its assets, liabilities, personnel, and even the state of the economy . M&A professionals often use a discounted cash flow valuation to understand whether a potential merger or acquisition is worthwhile in the long run.
Due diligence
For both the buying and selling side, an M&A professional must conduct due diligence on the financials of the companies involved , the seller or the buyer, and the culture and structure of the companies. Due diligence ensures that everything is in order and that the deal is between two legitimate parties, performing a sort of audit that ensures compliance and quality . You will conduct in-depth research on the company and ask tough questions to ensure there are no risks or surprises. For example, you wouldn’t want to go through an acquisition only to realize later that the company you acquired is in imminent danger of bankruptcy!
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