Merger and Acquisition

Merger and Acquisition are some of the main aspects of finance, business, management and strategies. Mergers and Acquisitions involve the combining of two companies which can be both public or private limited.

Merger: Definition

The process of consolidating two companies as a single entity. The companies that usually merges are usually equal in terms of size, market share and scale of operations.

Types of Mergers

• Horizontal Merger

• Vertical Merger

• Conglomerate Merger

• Market extension Merger

• Product Extension Merge

1. Horizontal Merger- This is a type of merger in which two companies that sell the same products which are in direct competition with each other merges together.

For example– 1- Integration of Vodafone and Idea

                        2- Facebook, Instagram and WhatsApp

                        3- Disney and Hot Star

2. Vertical Merger- The type of merger in which two companies are not direct competitors of each other but work in the same supply chain.

For example- 1- A car manufacturing company merging with a tire company

                        2- A furniture manufacturer acquires a wood maker

                        3- A medicine company acquires a chemical manufacturer

3. Conglomerate Merger- This is a type of merger in which the companies have different markets, different competitors and both have nothing common in their business.

For example– 1- Disney and Pixar                      

                        2- PayPal and eBay

4. Market Extension Merger- In this type, the companies which deal in the same products but different markets merge together to reach a much bigger customer base.

For example- 1- RBC Centura and Eagle Bancshares

5. Product Extension Merger- In this type of merger, the companies that sell related products and are in the same market merges together.

For example- 1- Pizza Hut and PepsiCo in 1977

                        2- Mobilink Telecom and Broadcom

Acquisitions: Definition

An acquisition is a situation where one company purchase shares of another company. Acquisition occurs when the buying company acquires more than 50% shares of another company.

Also read: Mamaearth- Case Study, Business Model, Competitors

Types of Acquisitions

• Friendly Acquisitions

• Hostile Acquisitions

1- Friendly Acquisitions- In this type, the board of directors of the targeted company accepts or agrees with the offer in a welcoming and friendly manner.

For example- – Johnson and Johnson takeover Crucell

– Deal between Facebook and WhatsApp

2- Hostile Acquisition- It is the type of acquisition which is carried out against the wishes of the board of directors and they have no prior knowledge about this.

For example- – Sanofi-Aventis and Genzyme Corp

                        – Walmart and Flipkart

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Advantages of Merger and Acquisition

1. Greater Value Creation

2. Gaining Cost efficiency

3. Competitive Advantage

4. Diversification

5. Growth

6. Goodwill

7. Profit Maximization

8. Economies of Scale

9. Tax Benefits

10. Future Improvements

Key Differences

MERGER	ACQUISITION
° When two companies combine to become a single company	° When a single company buys more than 50% shares of the targeted company
° Happens usually between companies of the same market share, size and scale of operations	° Acquisitions can be friendly or hostile
° No loss of cooperating culture	° Loss of cooperating culture
° Mutual benefits	° Loss to the targeted company
° Both companies have the same power	° The acquired company has no or less power

Why Merger and Acquisition Fails

1. Cultural Differences

2. Lack of Clarity

3. Financial Differences

4. Limitation of Resources

5. Lack of Strategic planning

6. External Factors

7. Data Inaccuracy

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