What Are the Merger and Acquisition Strategies?

Merger and acquisition, (M&A) simply defined is taking over of one company by another company.  In the market place, many factors drive mergers as a strategy for expansion or occasionally, for survival.  A small company may be proving too much of a troublesome competitor; in pricing, improved product or local influence.  A bigger company may perceive the threat and prefer to buyout the smaller rival.  Understanding the need, cost and risks will formulate the approach.

Ambition

A large number of companies follow merger and acquisition as a business policy.  They are constantly on the lookout for possible targets, even from verticals far away from their present activity.  Merger and acquisition is a frequent route taken to diversify into fresh fields.  Human resource asset in the form of trained and professional staff prompted many M&A in the software realm.  Funding, of course leads to many voluntary amalgamations.  While the effect is similar, for legal, administrative and tax purposes the activity may be termed differently from time to time.  The strategy follows the answer to the question “Why choose merger and acquisition?”

Voluntary

Business is like a battleground.  Rivalry is not permanent.  Quite a large number of companies, big or small have found that it is profitable to ally than fight each other.  This scenario leads to voluntary merger and acquisition and a simpler strategy.

Strategies

Hostile takeovers require very different methodology.  Buying out a controlling interest in public listed companies is one route. It may be a fait accompli or a declared action.  Securities and Exchange Board of India (SEBI), RBI, Company Law Board and general bodies of the companies are some of the regulatory bodies whose approvals may be necessary; this depends on whether the target company is public listed, its operating sector and government holding if any.  Share broking and financial service companies usually are the first information source for strategising merger and acquisition.

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About the author

SMC Capitals is an Investment Banking arm of SMC Global and is a SEBI registered Merchant Banker that has published many informative articles on Merger and acquisition.

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