MERGERS AND ACQUISITION

1. Define
- Merger is the combination of two firms, which subsequently form a new legal entity
under the banner of one corporate name¹. For example, both Daimler-Benz and
Chrysler ceased to exist when the two firms merged, and a new company,
DaimlerChrysler, was created.
- Acquisition occurs when one company takes over another and establishes itself as
the new owner. The acquired company becomes a subsidiary of the acquiring
company. When one company takes over another and establishes itself as the new
owner, the purchase is called an acquisition.
2. Types of M&A Transactions:
+ Horizontal: A merger between two companies that operate in similar industries¹.
+ Vertical: A merger between a company and its supplier or a customer along its
supply chain.
+ Conglomerate: A transaction usually done for diversification reasons and is between
companies in unrelated industries.
3. Forms of M&A Integration:
+Statutory: The acquirer is much larger than the target and acquires the target’s assets
and liabilities. After the deal, the target company ceases to exist as a separate entity¹.
+ Subsidiary: The target becomes a subsidiary of the acquirer but continues to
maintain its business.
+Consolidation: Both companies in the transaction cease to exist after the deal, and a
completely new entity is formed.

Reasons for M&A Activity**¹:

1. **Unlocking synergies**: The common rationale for M&A is to create synergies in
which the combined company is worth more than the two companies individually¹.
2. **Higher growth**: Inorganic growth through M&A is usually a faster way for a
company to achieve higher revenues as compared to growing organically¹.