Mergers are much better compared to acquisitions because the owner is able to retain some of their ownership
There are many types of acquisitions, however, many people opt for mergers rather than acquisitions since they believe they are much better compared to acquisitions because the owner can retain some of their ownership. But, are mergers better?
Mergers often occur when another company assumes one firm’s assets and liabilities. Most of these mergers are done so that the acquiring firm can retain their identity while the other company stops to exist. Many mergers require a vote by most shareholders who are necessary for approving a merger.
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There are various ways as to how a company can acquire another which may include purchasing all the company’s assets and its outstanding shares of stock. The reasons as to why the company’s conduct mergers are to try and have an economic gain in an economy. The two different firms that merge will be worth more combined than how they were previously before the merger.
Many companies merge to solve some of the common issues that they both might be having. For example, one of the main reasons why this is done is to achieve better economies of scale hence the reduction of variable cost which affects many independent small companies. Mergers allow companies to combine most of their resources which helps them eliminate most of the inefficiencies and have tax advantages rather than when they were independent.
Most companies participate in mergers helping them to have an advantage over their competitors, therefore, increasing their market power as they have the capabilities in penetrating new geographical areas and regions. Many companies see this as an option whenever they want to survive the business industry or further their outreach.
Many business experts argue that the best way to grow your company is by merging or acquiring other companies. Many business owners may decide to harvest their business so that they can release the value of the company that is locked up which has benefit to the investors and the owners. The reasons for them to consider merging are personal but most of them are due to a need for them to diversify most of their product offering or requiring a partner since they do not have the financial ability to grow independently. Other small business firms that want to compete with most of these leading firms merge with or acquire other small companies to stay in the game.
Businesses merge for different reasons but most of them do so that they can have a means of replacing their existing management. It is imperative for one to know that mergers are often unfriendly or hostile since they are known to affect the value of a firm and their relative value of the stocks and bonds.
There are three types of acquisitions namely:
Horizontal acquisitions are known to take place between two companies that have their businesses in the same line. A vertical acquisition, on the other hand, expanding one’s business in a forward or a backward chain in their line of distribution whereas a conglomerate is usually the combination of unrelated businesses.
Firms can as well buy shares or voting stock from another company which can be agreed by the management. Many of these companies provide tender offers that where the acquiring firm makes an offer to purchase most of their stock directly to their shareholders which surpasses the management team hence no need for voting as compared to a merger.
Instead of firms conducting mergers and acquisitions, most of them consolidate their assets where an entire new frim is created and the two previous companies stop existing. It is done by consolidating most of their financial statements under the assumption that the corporate entities are one. These entities combine the account balances of each individual firms, adjusting and eliminating certain entries that were made.
Doing a merger is better compared to acquisitions because companies practice synergy which allows for increased value efficiencies of the new entity helping it take shape of returns enrichment and cost savings.
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