M&A transactions involve the purchase of a company by another, usually in exchange for cash or stock. The goal is to achieve an advantage that will last in the market. It may not be the right choice for all goals, but those that are aware of its benefits and apply it properly can achieve significant growth.
M&A helps companies gain economies of scale, a phenomenon that “one plus one is more than two.” For instance when Facebook bought WhatsApp and Instagram, it tapped into the need for a new customer base without having to invest heavily in developing those services. It also gained scale and market presence which increased its bargaining power when dealing with clients or suppliers.
The most common motivation is the desire to build an empire, and managers are enticed by the prospect of buying companies that will increase their share of their market or decrease competition. This strategy can be extremely effective, provided it is done in the context of well-defined objectives and with adequate financial predictions.
M&A can aid a company to be successful and survive in turbulent markets. For instance, many banks merged to safeguard themselves from the Great Recession of 2008-2011, since credit quality was declining. It is also used to diversify revenue https://www.dataroomspace.info/working-capital-adjustments-in-ma-transactions streams by purchasing a company in an entirely different industry or. Retail companies, for example frequently acquire firms in the field of technology or ecommerce to expand into new markets and boost revenues. One mistake that is common is to see M&A as a mere financial tool without considering the strategic benefits that are created.
