What are mergers and acquisitions?
Mergers and acquisitions refer to the strategic processes through which companies combine or one takes control of another. While the terms are often used interchangeably, they represent distinct transaction types with different implications for ownership and structure.
These transactions serve as powerful tools for business growth, allowing organisations to achieve objectives that would be difficult or time-consuming to accomplish through organic expansion alone.
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Why do mergers and acquisitions happen?
Companies pursue mergers and acquisitions for various strategic reasons, each designed to strengthen their competitive position or unlock value. Understanding these motivations can help you determine whether an M&A transaction aligns with your business objectives.
- Market expansion – Acquiring or merging with a business that operates in different geographical regions or serves distinct customer segments allows you to enter new markets without building infrastructure from scratch
- Cost-effective economies of scale – Combining operations can reduce duplicate functions, streamline supply chains and lower per-unit production costs
- Access to new technologies – Rather than investing years in research and development, companies can acquire established capabilities and expertise through strategic purchases
- Diversification – Reduce risk by expanding into complementary sectors or product lines to stabilise revenue streams and protect against downturns in any single market
- Eliminate competition – Consolidate market share and strengthen your position within the industry
- Exit strategy – Retire or move on to new ventures while ensuring your company continues under new leadership
What are the different types of mergers and acquisitions?
Mergers
A merger combines two companies of roughly equal size and strength to form an entirely new entity. Both original organisations dissolve, and shareholders from each receive equity in the newly created business.
Acquisitions
An acquisition occurs when one company purchases another and assumes control. The acquired business may continue operating under its original brand or become fully integrated into the buyer's operations.
Consolidations
Consolidation involves two or more companies merging to create an entirely new organisation, with all original entities ceasing to exist. This differs from a standard merger in that it typically involves multiple parties rather than just two.
Stock tender offers
A tender offer occurs when one company makes a public proposal to purchase shares directly from the shareholders of another business, typically at a premium above the current market price. This approach can bypass the target company's management, allowing the acquiring firm to gain control even without board approval.
Asset acquisition
In an asset acquisition, one company purchases specific assets from another rather than buying the entire business. This approach typically occurs during bankruptcy proceedings and allows buyers to select what they want, such as property, equipment, intellectual property or customer contracts, whilst leaving behind unwanted liabilities or divisions.
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How can my M&A be structured?
There are several ways your merger and acquisition can be structured, depending on the relationship between the two businesses involved. These include:
- Horizontal – Combining two businesses that operate in the same industry and often compete directly
- Vertical – Transactions occur between companies at different stages of the same supply chain
- Congeneric – Sometimes known as product extension, this involves FIRMS in the same industry that offer different but related products or services
- Market-extension – Bringing together companies that sell similar products or services but operate in different geographical areas
- Conglomeration – Completely unrelated businesses in different industries combine
M&A financing options
Securing appropriate financing is crucial for completing mergers and acquisitions successfully. The structure you choose will depend on the type of transaction, the size of the deal and the financial position of the companies involved.
Purchase mergers
One company buys another using cash, shares or a combination of both. Cash transactions provide certainty for sellers while share-based purchases offer the selling company's shareholders equity in the combined entity.
Consolidation mergers
Typically involving complex financing arrangements, the transactions mean all participating businesses receive stakes in the new organisation based on valuations of their original companies.
Additional capital may be raised through debt financing or external investment to fund the restructuring process and integration costs.
What are the benefits of working with an M&A broker?
Mergers and acquisitions involve complex negotiations, detailed financial analysis and significant legal considerations. Working with experienced M&A advisors can make the difference between a successful transaction and a costly mistake. Here is why:
- Professional brokers bring extensive market knowledge and can identify suitable acquisition targets or merger partners that align with your strategic objectives
- Experts conduct comprehensive valuations that consider assets, trading potential, market position and growth opportunities
- Experienced advisors act as intermediaries, managing discussions professionally whilst protecting your interests and maintaining confidentiality
- Brokers can coordinate due diligence checks, identifying risks and opportunities that might not be immediately apparent
“Whether you are looking to expand through acquisition or merge with a complementary business, having experienced advisors who understand the complexities of M&A transactions is essential. We help clients navigate every stage, from initial valuation to final completion, ensuring the deal structure serves their long-term objectives.”
Why should I complete a merger or acquisition with Eddisons Business Sales?
- Extensive experience – We have been facilitating business sales for over 75 years, completing thousands of transactions
- Highly rated service – Previous clients rate us positively following their transactions
- Comprehensive valuations – Our specialists conduct detailed valuations to ensure fair deal structures
- FCA authorisation – We are regulated by the Financial Conduct Authority, giving you peace of mind throughout the process
Discuss your M&A requirements with our experts
Whether you are considering a strategic merger, planning an acquisition or exploring options to sell your business, our team is here to provide expert guidance throughout the process. Call 0113 340 9840 or complete the form below to get started now.
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How are mergers and acquisitions financed?
M&A transactions can be financed through various methods, including cash purchases funded by bank loans or reserves, share-based deals where sellers receive equity in the combined entity, or hybrid arrangements using both cash and shares.
Some transactions also utilise vendor financing, where sellers agree to receive payment over time, or involve private equity investors who provide capital in exchange for ownership stakes.
