The merger and acquisition (M&A), market is an essential part of the growth strategy for many public companies. Public companies with surplus cash frequently look for opportunities to buy other companies to gain organic growth. M&A is usually a combination of two companies in the same industry at similar levels in the supply chain.
In general, a company can purchase another for cash, stock or even debt. Sometimes, the investment bank involved in the sale of a firm will also provide financing to the buyer company too (known as”strategy finance”).
M&A typically starts with a thorough analysis of the target company including financial reports as well as business and management plans, as well as other pertinent data. The process is known as valuation and is carried out by the company that is buying it or outside consultants. Typically, the business performing valuation has to consider more than just financial data, including the culture fit and other from this source aspects that will impact success of the deal.
Growth is the most frequent reason for a merger or acquisition. The size of the business increases its bargaining power, and it reduces costs. Diversification can also increase the capacity of a company to weather downturns in the economy or to earn steady income. In addition, some companies purchase competitors to strengthen their position in the market and eliminate the possibility of future threats. This is referred to as defensive M&A.