Published On: 23/01/2022Categories: Financial Education

M&A SYNERGY

The merger aims to increase the market value of the companies. This is explained through the synergy effect.

The market value of the joint venture exceeds the sum of the market values ​​of the companies considered independently.

The economic decisions of the company must tend to increase its market value, that is, to maximize the value of its shareholders.

The synergy effect consists precisely in increasing the market value through integration or collaboration processes.

M&A (Mergers and Acquisitions) operations are complex and carry significant risks.

An M&A transaction is an investment decision.

TYPES OF SYNERGY

REASONS TO PERFORM MERGERS AND ACQUISITIONS (M&A)

Acquisition

Combination of two companies in which only one company survives. The acquired company disappears. The acquiring company assumes the assets and liabilities of the acquired company.

A + B = A

Fusion

Combination of two or more companies to form an entirely new company.

A + B = C

REASONS TO MAKE M&A

  • Maximize value: Synergy
  • Search economies of scale
  • Expansion of the range of products and services
  • Business complementarity
  • New distribution channels
  • Entity size
  • Power ambition
  • Mimicry
  • Reduce uncertainties
  • Defensive considerations
  • Business reservations
  • Shareholder value

It is important to keep in mind that the merger does not always have a positive result.

WAYS TO MAKE M&A

  • Initial Analysis
  • Profile of companies to integrate
  • Protocol of intentions
  • information exchange
  • Company valuation
  • Shareholders Agreement
  • Exchange Equation
  • Definition of merger balances
  • Sign merger agreement
  • Due Diligence

MERGERS AND ACQUISITIONS (M&A) FAILURES

Different corporate culture «Cross Cultural Management», language differences, differences in the conception of social relations between the merged parties, especially in transnational operations.

For employees, they can generate uncertainty, because they are almost always accompanied by job restructuring.

TO KNOW MORE:

CHAPTER 18: Merger and acquisition operations

 

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