Mergers and Acquisitions (M&A)
What is M&A?
M&A, which stands for mergers and acquisitions, is an umbrella term to describe the combining of two companies. The idea being that two firms together are more valuable than separate businesses. A merger is when two firms become one, usually with a new name, while an acquisition is when one company buys another.
Where have you heard about M&As?
M&As often make the headlines as deals can be worth millions of dollars. Google, for example, has acquired a number of firms, including YouTube and Android, while one of the biggest mergers of all time was between Glaxo Wellcome and SmithKline Beecham to create GlaxoSmithKline.
What you need to know about M&As...
M&A can include other types of transaction as well as mergers and acquisitions, such as consolidations, tender offers and purchase of assets.
When a merger or acquisition is announced or even just rumoured, it will usually affect the share price of both companies involved.
In an acquisition, the company that is being bought is called the target company. The acquiring firm need to buy at least 50% of the equity in the target company in order to gain control. If you hold shares in the target company, you have to decide whether to accept the offer from the bidding company to buy your equity stake.
In a merger of firms that are about the same size, new shares may be issued under a new company name.