THE THREE C’s of M&A

M&A的圖片搜尋結果Let’s take a look at equity capital market deals this year to date. The latest M&A trends prove that more and more companies are turning to Merger and Acquisitions as a means of growth. The Wall Street’s initial public offering trends have become more common as companies open their stocks to public in order to establish themselves as successful companies, increase funds and gain better standing with customers.

A historic rise in the number of M&As in the finance market in comparison to  Initial Public Offering trends prove that more companies are fetching for external growth through corporation.  For this reason, it is crucial for stakeholders to understand the three big C’s of Mergers and Acquisition trends in order to make the right call when faced with the option of initiating or joining an M&A.

 

CORPORATE RESTRUCTURING

The structure of a company will either change drastically or very little, depending on whether it is a merger taking place or an acquisition.

The terms merger and acquisition may be used interchangeably when in fact, there is a distinct difference to them. When a corporate body joins with another in an effort to work together, it is a merger. When a corporate body buys out another and completely takes over its management, it is an acquisition.

Understanding this will allow you to know if the position of your Board of Directors, Employees and even CEO is at risk of significant restructuring after an M&A, in the case that it is a buyout.

 

CAPITAL OPTIMIZATION

The main goal for most M&As is to increase profit, possibly triple stock value and save costs. Whilst M&A trends may give the impression that companies that are M&A immediately incur revenue enhancement, it is not always clear to see the costs that the company had to independently source before doing so.

It is also important to keep in mind that there are tax consequences for M&A as well as the companies setting IPO trends. One of the most common thoughts CEOs have before launching into an M&A is that book value differences between two merging companies will initially reduce tax. This may prove true but there is a lot of costs to be paid before you get to that point.

 

COST EFFICIENCY

The final and most important C in M&A trends is cost efficiency. M&As have the potential to either uplift a company or relegate it. While two merging companies will offer economies of scale, there are key factors to consider. Firstly, do not underestimate purchasing power and never initiate an acquisition without setting aside sufficient back up funds.

It is also important to keep in mind that even if your company is being acquired, this does not absolve you of any debt that you may have had, even if it means your acquired company may be liquidated eventually.

 

In conclusion, do not jump into the bandwagon by following M&A trends simply to compete with your competitors. Take time to scrutinize your company and its needs before making bold decisions.