Merger and Acquisitions: Conducting the Deal

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Mergers and acquisitions have always been popular amongst large businesses and corporations who are on a constant lookout for smaller businesses to acquire. They have become the primary way for organizations and businesses to grow and expand their respective markets. Globalization has a played a part in this trend, and corporations have adopted mergers as the ideal way to introduce their brands and services to consumers all around the world.

Corporations all over the world undergo mergers and acquisitions, to make use of reduced costs, tax benefits and massive profits that come along with this business move. But not all deals are destined to become successful, and mergers often end up causing massive financial damage to companies involved in the deal. So if you are looking at merging or acquiring a new firm, corporation or business, this is what you must keep in mind to learn how to conduct a deal.

Start with the Offer

A merger and acquisition deal is initiated with a tender offer, which allows the acquiring company to buy the shares of the target company. The acquiring company after purchasing the shares on the open market must then clearly state its intentions that whether it would like to acquire the target company, or keep the shares as an investment in their business.

The acquiring company will then determine the actual worth of the target company, through the help of financial advisors or investment bankers, and place an estimated value on the company. The tender offer acts as a precursor to the offered price for the target company and states a deadline by which the company may accept or decline the offer put forth by the acquiring company.

The Response of the Target Company

After the tender offer has been submitted by the acquiring company, a target company can do one of the following things in response to the offer.

Accept the Offer

This is rarely done quickly, but invariably a smaller firm will agree to a merger and acquisition deal in order to grow and expand their business.

Start Negotiations

The price offered by the acquiring company may not justify the price of the target company, and the share holders will not accept the deal, and ask for a more attractive proposal. The management usually sets the terms for negotiations, since their own jobs are placed on the line in an acquisition deal and they will hold out for the best possible deal, which compensates them for their jobs.

Some target companies are subject to several bids from different corporations, which strengthen their negotiation powers and allow them to choose the best offer on the basis of future success for both parties.

Closing the Deal

The final step in the process, once all the requirements are met, is closing the deal. Some deals may face hiccups, if they are subjected to a regulatory check up. This may be done by the governing body setup in the industry, who would want to make sure that the deal is conducted in a fair manner, and if the merger and acquisition deal is creating a monopoly in the industry. Some deals may even be opposed, as in the case of two major corporate giants merging to form a monopoly in the market.

Once the deal is closed, the acquiring company purchases all the shares of the target company and integrates its business and shares into the target company.

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