With a lot of new mergers and acquisitions taking place around us and another one on the cards soon (Yes I am referring to the Vodafone-Idea merger), changewhat better time to get to know more about these deals which significantly impact the value of a company.
Mergers and Acquisitions arechangesin control of companies that decide to combine the operations of multiple entities into a single one.
In a merger, both the companies decide to combine their operations and resources into a single entity.
In an acquisition, one company purchases the other company and has the right to sell the latter’s operations, merge them into similar groups into its own company or shut down the facility and cancel the products altogether.
So when do companies merge? There might be a lot of reasons, a few of which are below.
- The combined new entity would be larger, have significantly more resources for marketing and production, would increase their market share and make it easier to obtain funding.
- The combined entity could merge similar operations to reduce costs and resources. Corporate and administrative functions, such as human resources and marketing, are often targets for combinations.
- The combined entity might have lesser competition in the marketplace. If the products of the two companies competed for customers, they could combine their offerings and use resources for improving the product.
So when do companies acquire?
- A company might acquire another company to increase its size and visibility in the marketplace and to improve its brand image.
- A company can acquire another company when they want a specific product. This generally happens when the cost of buying the company is much lower than trying to make the product themselves.
- A company might acquire another to obtain control over a critical resource. For example, a jewelry company might acquire a gold mine, to ensure they have continuous access to gold without market price fluctuations affecting them.
Let’s look at top Mergers and Acquisitions in history.
With all that knowledge, watch out for the Vodafone-Idea merger and let’s see where the new entity goes. Because after all, it’s a Win-Win situation for the consumer in today’s Telco business. ( ThanksJio)