Introductions to Mergers and Acquisitions
Mergers and Acquisitions occurs when two companies join in their resources and
come together as one. A corporate M&A can have a profound effect on a company's
growth prospects and long-term outlook.
Mergers happen when two businesses join forces. Such deals often occur between
two organizations of comparable size that understand the benefits the other
provides in terms of increased sales, efficiencies, and capabilities. The merger
arrangements are frequently amicable and mutually agreed upon, and the two
companies become equal partners in the new company.
Acquisitions occur when one company purchases another and incorporates it into
its operations. Depending on whether the company being bought believes it is
better off as an operating unit of a bigger venture, the acquisition can be
friendly or hostile.
What Is A Merger?
Let's start by understanding what a merger is. A merger can be defined as two
enterprises of roughly equal size joining forces to continue forward as a single
new organization rather than being separately owned and run. A merger when
occurs the stock of the two are considered as one. Although a merger is commonly
assumed to be an equal split in which each side keeps 50% of the new firm, this
is not always the case.
In some mergers, one of the original entities receives a
bigger percentage of the new company's ownership. Here often the smaller company
or the less important company loses it's identity in the merger and the entire
thing is recognized as the major company.
When both CEOs agree that joining forces is in the best interests of both of
their companies, the transaction is referred to as a merger. Mergers can occur
in a variety of ways depending on the relationship between the two companies
involved in the transaction:
Horizontal merger: A merger between two companies that are in direct competition
and have similar product lines and markets.
A vertical merger: a merger between a client and a firm when they unite, or when
a supplier and a company merge. Here considering a notebook making enterprise
merges with a local paper producer:
These kind of mergers include two companies that service the
same consumer base in different methods, such as a television manufacturer and a
A market-expansion merger occurs when two companies sell the same items in
A product-extension merger occurs when two companies sell distinct but related
items in the same market.
Conglomeration: A combination of two enterprises with no common business lines.
One of the major merger in recent times is of Zee Entertainment and Sony India.
What Is An Acquisition?
The process by which one corporation acquires another is known as acquisition.
The financially powerful firm buys out more than half of another company's
stock. Acquisitions are not always completed amicably. A corporation may be
required to purchase another company for a variety of reasons, such as expanding
into new areas, attracting new consumers, or lowering competition. However,
acquisition can occur when one corporation decides to be purchased by another
without any enmity.
The transition from acquisition to acquisition is not always
seamless because the firm that took over would impose all decisions on
employment, structure, resources, and so on, generating an air of discomfort in
the acquired company and its employees. Acquisitions are often made to gain
control of and build on the target company's capabilities, as well as to capture
With an acquisition there is a lot of benefit that the acquiring party has with
an already known brand, a high reputation, and an existing client base, the
company may enter new markets and product lines instantly. An acquisition can
help your company swiftly boost its market share. Even though competition can be
difficult, growth through acquisition can assist obtain a competitive advantage
in the industry.
The approach aids in the achievement of market synergy. Due to
the costs of market research, the development of a new product, and the time
required to acquire a sizable client base, market entry may be an expensive
concept for small enterprises.
A company can opt to acquire other businesses in order to get competences and
resources that it does not currently have. Many advantages can result from doing
so, such as rapid revenue growth or an increase in the company's long-term
financial situation, which makes acquiring funds for expansion initiatives
easier. Expansion and diversity can also help a company weather an economic
One of the most recent acquisition that has occurred is of Infosys acquiring
oddity, A German digital marketing agency.
Laws Regulating Mergers And Acquisitions In India:
There are a number of laws governing mergers acquisitions they are as follows:
The Companies Act of 2013, this is the most primary legislation governing M&A.
then the other legislations are Foreign Direct Investment Policy, The Securities
and Exchange Board of India, Foreign Exchange Management Act, The Insolvency and
bankruptcy code, 2016, The competition act, 2002, The Income Tax Act.
What Is The Difference Between Mergers And Acquisitions?
Now that we know what mergers and acquisitions are, Let's understand the
difference between the two although they may seem alike but the have vast
differences. Mergers are coming of two entities together having similar interest
and having one stock, acquisition is buying of one company by the other and the
later having complete control over it.
Companies that merge commonly regard each other as equals, and so encourage each
other to build a synergy. In the case of an acquisition, the acquiring firm
imposes its will on the acquired company, depriving the acquired company of its
freedom and decision-making power. The power differential between acquired and
acquiring firms is enormous.
Mergers are strategic decisions made after extensive consideration and planning
by the companies that will be merged. As a result, the likelihood of a chaotic
atmosphere following merger is reduced. The acquisition is likewise a strategic
decision, but in most circumstances, the decision is not mutual. As a result,
there is a lot of antagonism and confusion after an acquisition.
In mergers a lot of paperwork goes down as a result of formation of a new
company whereas in acquisition there is not a lot of paperwork involved since
there is no such thing happening and one company is taking over.
When it comes to the power play both the companies involved in merger share
almost equal power in the functioning of the company but however in acquisition
the acquiring company has an upper hand in dictating the terms.
The growing and changing world is in constant need to resources and new ideas to
move ahead and this growth cannot always be achieved on its own there is a lot
that goes in into building and running a company. Mergers and Acquisitions are
the new way forward. Mergers and acquisitions are utilized as instruments of
significant expansion and are increasingly being acknowledged as key tools of
business strategy by Indian businesses.
They are frequently employed in a
variety of areas such as information technology, telecommunications, and
business process outsourcing, as well as traditional company, to increase
strength, grow client base, reduce competition, or enter a new market or product
segment. Mergers and acquisitions can be used to gain market access through an
established brand, gain market share, decrease competition, minimize tax
liabilities, acquire expertise, or set off one business's cumulative losses
against the profits of another entity. These prove to beneficial not only to the
companies but to the market and the economic at large.
Law Article in India
You May Like
Legal Question & Answers