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Are you interested in law and legal strategies? If so, mergers and acquisitions are the most amazing strategy you should know. To deepen understanding of this strategy; the M&A process is an interesting strategy that will expand your legal information.
The M&A strategy is one of the biggest strategies in the field of law and one of the most difficult ones for the lawyers to do. However, that doesn’t mean you can’t learn it; because it’s going to be discussed in a very easy way in this article.
In this article, we’ll explain the meaning of the M&A deals, differences between them, and examples about them. In other words, we’ll cover everything.
What does M&A strategy mean in companies?
The M&A process is a type of deal in which two companies combine their assets. Although the terms are sometimes used interchangeably, mergers and acquisitions are not technically the same.
In a merger: two companies are combined. This usually happens among equals and the two companies become one jointly owned company.
In an acquisition: the acquiring company buys most or all of the purchased company. The acquired company may be absorbed or combined with other operations of the purchasing company, or the acquired company may operate as a standalone business under its original name.
At the end of this paragraph, We hope you realized the meaning of the merger and acquisition process in addition to the difference between them.
Why do companies do mergers and acquisitions?
The M&A process is a very useful strategy, because of that many companies prefer to do it. mergers and acquisitions Companies do this process for a host of reasons, including:
Synergies: By combining business activities, overall performance efficiency tends to increase and across-the-board costs tend to drop, due to the fact that each company benefits from the other company's strengths.
Growth: Merger and acquisition process can give the acquiring company an opportunity to grow market share without doing significant heavy lifting. Instead, acquirers simply buy a competitor's business for a certain price, in what is usually referred to as a horizontal merger. For example, a door company may choose to buy out a smaller competing doormaker, enabling the smaller outfit to produce more doors and increase its sales to brand-loyal customers.
Increase Supply-Chain Pricing Power: when a company buys out one of its suppliers or distributors, it can eliminate an entire tier of costs. Specifically, buying out a supplier, which is known as a vertical merger, lets a company save on the margins the supplier was previously adding to its costs. And by buying out a distributor, a company often gains the ability to ship out products at a lower cost.
Eliminate Competition: Many mergers and acquisitions companies deals allow the acquirer to eliminate future competition and gain a larger market share. On the downside, a large premium is usually required to convince the target company's shareholders to accept the offer. It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower, in response to the company paying too much for the target company.
Improve company’s performance: through increasing its value, decreasing costs, improving growth in earnings per share and widening profit margins. This is the most intelligent objective of mergers and acquisitions.
removing excess capacity: A company absorbs another in its industry, so it can keep a check on production capacity and reduce it if necessary.
To summarize, we have discussed the reasons why companies do mergers and acquisitions. These reasons are briefly synergies, growth, increasing supply-chain pricing power, and eliminating competition. Now that we have learned why companies do M&A deals, we should learn the objectives of it.
How are companies valued during M&A?
The company valuation in mergers and acquisitions process aims to put a dollar amount on a business by accounting for several factors and aspects of its operation. Two companies within the same niche that have the same market size may differ in valuation when you consider other aspects of business operation. There are some factors appraisers look at, including:
Stage of the company’s lifecycle.
company history and reputation.
Observable growth.
Marketplace competition.
Prospects.
Cost for the buyer to build a similar business from scratch.
It’s clear to us at the end of this article that we have tried to discuss how companies are valued during mergers and acquisitions and the factors determining their worth.
What are the advantages and disadvantages of mergers and acquisitions?
Everything in the world has a good face and a bad face, the M&A strategy is also so. We'll first show you the good face of merger and acquisition strategies .
The advantages of mergers and acquisitions
Improved Economic Scale: A new large company or a business that has acquired another company generally has increased needs in terms of materials and supplies. And when a company has high demands, it means it has a high purchasing power. A high purchasing power enables a company to negotiate bulk orders, and when a company is able to negotiate bulk orders, it results in cost efficiency. In other words, by purchasing supplies and materials at higher volumes, a company is able to improve its scale.
Enhanced Distribution Capacities: the M&A process may result in a company expanding geographically, which would, in turn, increase the company's ability to distribute goods or services to more people.
Increased Market Share: When two companies operating in the same industry become one, or when a company acquires another company operating in the same industry, the new or larger company gets to enjoy a greater market share.
Improving a Product’s Time to Market: A larger, more established company takes over a smaller one with a promising product. Smaller companies often lack the resources to quickly get their offering to market. IBM, for example, has purchased technology products from smaller companies and then used its vast sales force to increase its revenue. Also, Procter & Gamble’s acquisition of Gillette was intended to improve their collective speed to market.
Acquiring Technologies, Expertise, Products, and Resources: A company buys a business because the merger and acquisition strategies cost less than it would to develop a technology, expertise, or product from scratch. Apple bought Siri for this purpose, and Cisco also employed a similar strategy during the internet boom to rapidly expand its range of networking solutions.
We know you’re excited now, but we’re afraid to tell you that there is a bad face for M&A deals we’re going to discuss it in the next paragraph.
The disadvantages of mergers and acquisitions
As we said before, everything has a good face and a bad face. The following are some of the disadvantages of mergers and acquisitions:
Job Losses: When two companies doing the same activities come together and become one company, it might mean duplication and over capability within the company, which might lead to retrenchments.
Diseconomies of Scale: Sometimes mergers and acquisitions can result in diseconomies of scale. For example, this can happen if the owner of the new larger company lacks the control required to run a bigger company.
Higher Prices: Although not something that affects the business, it is worth mentioning. A great market share is good for a business, but it can be bad for consumers. When a company has less competition and greater market share, consumers tend to pay more for products or services.
Our law experts are aware of the advantages and disadvantages of M&A strategy. So, when you need any legal information in it, call us now and we will give you good m&a consulting that will be of great use to you in the path of expanding your business.
Cases of mergers and acquisitions
The world has seen lots of successful M&A deals cases. Big and famous mergers and acquisitions companies are always a great source of inspiration and a chance to learn from. Let’s discover the best and biggest (either by the deal size, strategic importance, or impact on the industry) examples of mergers and acquisitions.
Vodafone and Mannesmann, $202.8 billion: This deal is known as the biggest merger and acquisition process of all time, mainly because of its value — $202.8 billion. A Britain-based Vodafone acquired a Germany-owned Mannesmann in 1999. This transaction aimed to consolidate Vodafone’s position in Europe. As a result, this largest m&a process enabled Vodafone to become the world’s largest mobile operator.
Dow Chemical and DuPont, $130 billion: Dow Chemical Company is an American multinational chemical corporation. DuPont was also a successful chemical company that specialized mainly in gunpowder mills. In August 2017, the companies announced that they had successfully completed their merger. As a result, DowDuPont corporation appeared. The total deal value is estimated at $130 billion, which makes it one of the biggest mergers and acquisitions companies examples in the history of mergers and acquisitions .
Gaz de France and Suez, $180 billion: These two French national companies announced their merger in 2007. The estimated deal value is around $180 billion. This transaction created the world’s fourth-largest energy company, which makes it one of the biggest global mergers and acquisitions companies examples. An interesting fact about the deal: Nicholas Sarkozy, former president of France, hailed the new French giant creation.
How is M&A deals due diligence done?
Given the breadth of information looked at in mergers and acquisitions valuation methods, you may be wondering how to prepare for M&A deals and the large due diligence required to support the valuation.
In M&A process due diligence, the buyer and seller disclose material facts about their business. Think of it as a fact-finding mission where the buyer and seller fact-check their claims to finalize the deal. Our experts in mergers and acquisitions strategies can do this to make sure you make the best deal. Staying organized is key to successfully navigating M&A due diligence. One of the best ways to stay organized is by using a virtual data room where both sides can upload key documents and our experts will review these documents. TCMG has very qualified data analysts who build a virtual data room that offers secure, encrypted storage. Stakeholders can access the data room remotely to upload documents, our experts in merger and acquisition strategies will perform due diligence and speed the deal to a successful close.
TCMG will be leader who does what should be done to care about the required documents and procedures, thus making you have a significant deal. TCMG experienced lawyers will make sure you get the best m&a consulting that helps you understand the m&a process and have a successful deal.
Why choose us with confidence?
TCMG is distinguished from other accredited law firms in the ethics that govern the work mechanism within our office, in addition to the principles of the lawyers and partners working in the office who believe in the importance of self-development on the practical and legal level in their effort to transform our office into an international law firm in Egypt. When it comes to mergers and acquisitions, Our clients have witnessed the strength of our office and the confidence of dealing, that’s why we are qualified to offer you the best m&a consulting. you will find the following principles when dealing with us:
Customer satisfaction is our priority.
Quick legal solutions.
Keeping customer secrets.
Trust is our slogan.
TCMG has unique legal specializations that require legal experience and a first-class strategic idea. We are proud to have our lawyers who specialize in various fields of law such as:
Criminal lawyers
Financial lawyers
International lawyers
Civil lawyers
Real estate lawyers
TCMG is the largest international law firm in all the fields of law like personal injury law, family law, corporate law and finally mergers and acquisitions strategies, and this is due to the volume of cases received by the office, and the international and local clients who dealt with us. The office has taken its headquarters in the heart of Cairo for achieving legal goals To all our valued clients, contact us now, if there is anything you need to ask a lawyer about.
Conclusion
It’s clear to us from the article that merger and acquisition strategies are vast processes and there is alot to tell about them. They are very useful in the dynamic world of business; that’s why most of the companies prefer to do them instead of many legal strategies. We have also learned that they are not the same, and discussed the differences between them. However, the world has seen a lot of successful m&a deals that are sources to learn from. We've tried to explain all what you need to know about mergers and acquisitions and provide you with every piece of information.
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