Driving Business Growth through Merger and Acquisition Process
The process of mergers is undertaken when two companies come together and form one company by signing an agreement. Mergers are categorized into several types, all of which will be discussed in this article. Merger and acquisition process involves various steps that individuals must follow so that the process is successful. Both mergers and acquisitions help in the growth of business enormously.
What are some reasons for mergers and acquisitions to take place?
Mergers and acquisitions are common in the business which involves companies that offer several types of products and services. The reasons behind companies opting for mergers and acquisitions are as follows –
What are the types of mergers?
Mergers are divided into various types, in this section, we will talk about certain types.
Conglomerate Merger
When a merger between two companies is undertaken with two unrelated business activities, it is referred to as a conglomerate merger.
Horizontal Merger
When a merger is undertaken between two companies where both the companies belong to the same industry, it is termed as a horizontal merger.
Market extension Merger
Market extension merger is defined as a merger between companies that deal with the same products but in different markets.
Product Extension Merger
When two companies produce or manufacture similar products or products that are related to each other and operate in the same market, come together to form a better product, it is called a product extension merger.
Vertical Merger
Vertical mergers take place when two companies that operate on different levels but within the same industry, merge their business activities and produce different goods with the objective to produce one final product.
What is acquisition?
Acquisition is a process in which the ownership of companies, business organizations, or other operating units is transferred with other entities.
An acquisition is when a company purchases most or all of another company’s shares and gains complete control of that company. If a company purchases 50% of a company’s stock and other assets, it can take decisions of the company acquired without seeking permission.
What is the process of Mergers and Acquisitions?
Mergers and Acquisitions are different with regards to the process by which both of them take place. In this section, we will highlight the process of merging of two companies and the process of one company acquiring another company. The mergers and acquisition process will be explained in this section.
Develop an acquisition strategy
Making a plan or strategy is important for a company that is planning to acquire a company. The company must take into consideration various aspects involved in the procedure of acquiring a company.
Develop search criteria for potential companies
In this step, the company understands various types of companies that would benefit them; these companies must be profitable or must have the potential to earn huge amounts of profits.
Begin searching for companies
After the search criteria are set, the companies can start looking for companies that they are interested to work with.
Understand the Memorandum of Association of the company
The MOA of a company contains all the important aspects of the company mentioned in the document. Thus, the acquirer or merger must read and understand the MOA of the company before taking any decision.
Consult with the Stock Exchange
Information can be gathered about any company from the stock market. The stock exchange must also be informed of the merger or acquisition that will take place.
Perform valuation process
The valuation process is conducted after the target company provides necessary information about the company after which the value of the company is determined.
Negotiation
A price is fixed and sent to the company from where the negotiations start and an adequate price is set.
Perform Due Diligence
Due diligence is a process of evaluation that is performed by the company to ensure that all the details are correct and true. The process of due diligence is crucial and an important aspect of the Merger and Acquisition process.
Draft a Merger Proposal
The board of directors must draft a merger proposal that contains all the details with regards to the process of merger.
Integration of two companies
After all the details are checked and everything is finalized, the merger and acquisition process ends with the integration of the companies.
What Documents are required for Mergers and Acquisition process?
Documents that are required to be submitted at the time of mergers and acquisition process are as mentioned below –
- Term sheet
- Memorandum of understanding
- Letter of intent
- Agreement of Purchase and Sale
Conclusion
The Merger and Acquisition process must be followed in a proper manner. All the guidelines must be followed in an appropriate manner in order to avoid any differences of opinion.