Corporate Finance Institute Explains Mergers and Acquisitions and Their Impact on Business Growth

What's Happening?

Mergers and acquisitions (M&A) involve transactions where two companies combine in some form. A merger typically involves two companies of similar size forming a new entity, while an acquisition occurs when a larger company absorbs a smaller one. M&A deals can be friendly or hostile, depending on the target company's board approval. The rationale behind M&A is often to create synergies, which can lead to cost reductions or increased revenues. Types of M&A include horizontal, vertical, and conglomerate mergers, each serving different strategic purposes.

Why It's Important?

M&A activities are crucial for companies seeking rapid growth, increased market share, or diversification. They allow companies to achieve economies of scale, enhance market power, and access new capabilities without developing them internally. This can lead to stronger competitive positioning and financial performance. However, M&A also involves complex valuation processes and potential risks, such as integration challenges and cultural clashes, which can impact the success of the transaction.