Mergers and acquisitions of companies are a special class of economic processes of consolidation of business and capital, which take place at the micro- and macroeconomic levels, and as a result of which, larger companies are formed on the market instead of several smaller ones. Check what happens after the acquisition process is completed in the article below.
How to Implement a Successful M&A Transaction?
Mergers and acquisitions are different every time; there is a wide variety of different types of buyers and sellers. There are a number of factors to consider when estimating value, including over time, which can make a big difference in the valuation. It is rather difficult to assess the effectiveness of an M&A transaction from a broad perspective. It is necessary to soberly assess the specifics of the industry, see the vector of the company’s domestic and foreign policy, and take into account many other factors that affect the result.
In practice, mergers and acquisitions are valued based on discounted cash flows and the company’s net asset value. Current tax legislation sometimes encourages mergers and acquisitions, the results of which are lower taxes or receiving tax benefits. For example, a highly profitable firm carrying a high tax burden may acquire a company with large tax benefits that will be used for the resulting corporation as a whole.
A successful M&A transaction is possible with the consistent implementation of several related stages. It is important not to ignore even the little things, otherwise, the transaction may become unsuccessful. And it is not at all necessary that its participant finds out about it right away. Consequences may appear after a significant period of time after the closing of the transaction when all legal and financial procedures have seemingly been completed. It can fail at any of its stages, even when the legal change of ownership has already passed (the so-called integration stage).
How to Complete the Acquisition Process?
Most companies at the acquisition stage create a transitional structure – a temporary organization consisting of committees and working groups to coordinate actions. By participating in them, you get a chance to show and develop the skills of teamwork, project execution, and innovation.
After the acquisition process is completed, the acquired company no longer exists following an acquisition since it has been absorbed by the acquirer. The object for the purchase or acquisition is chosen based on the development strategy of your own company. At this stage, an analysis of needs and opportunities is carried out, an assessment of one’s own company, as well as the search and selection of possible candidates. The acquisition is more radical than the merger:
- the company acquires 30 percent or more of the authorized capital of the absorbed organization;
- the buyer becomes the owner of the main share of the assets, so he gets full control over the legal entity;
- this type of association can be friendly or hostile.
For example, in the case of a company interested in acquiring a share of a business in order to attract investment in its development, important information constituting a commercial secret may fall into the hands of competitors; information about the impending sale of the business may cause unrest among the company’s staff due to the likely series of layoffs after the change of ownership, which, in turn, may lead to a decrease in business efficiency and increased employee turnover during the transition period.