What are mergers and acquisitions?
What are mergers and acquisitions?
Mergers and acquisitions (M&A) are transactions in which businesses combine or one company buys another. They can help companies enter new markets, gain capabilities and grow. However, they also involve financial, strategic and operational risks.
Mergers and acquisitions (M&A) are transactions in which businesses combine or one company buys another. They can help companies enter new markets, gain capabilities and grow. However, they also involve financial, strategic and operational risks.
A merger
A merger
Two companies combine into a single business. Their owners typically receive a stake in the combined company, and the businesses bring together their teams, assets and operations.
Two companies combine into a single business. Their owners typically receive a stake in the combined company, and the businesses bring together their teams, assets and operations.
An acquisition
An acquisition
One company buys control of another, usually by purchasing its shares or assets. The acquired business may keep its brand and operate separately, or become part of the buyer’s organisation.
One company buys control of another, usually by purchasing its shares or assets. The acquired business may keep its brand and operate separately, or become part of the buyer’s organisation.
Why do companies pursue M&A?
Why do companies pursue M&A?
A buyer might want access to new customers, technology or expertise. Combining businesses can also create synergies: benefits such as lower costs or increased revenue. Those benefits are not guaranteed, and paying too much or integrating poorly can destroy value.
A buyer might want access to new customers, technology or expertise. Combining businesses can also create synergies: benefits such as lower costs or increased revenue. Those benefits are not guaranteed, and paying too much or integrating poorly can destroy value.
From opportunity to ownership
From opportunity to ownership
A typical transaction involves identifying a target, valuing the business, conducting due diligence, negotiating terms and arranging financing. Regulatory and shareholder approvals may be required before completion. Afterwards, attention turns to integration and delivering the investment’s objectives.
A typical transaction involves identifying a target, valuing the business, conducting due diligence, negotiating terms and arranging financing. Regulatory and shareholder approvals may be required before completion. Afterwards, attention turns to integration and delivering the investment’s objectives.
THE FUNDAMENTALS
What is private equity?
What is private equity?
Private equity (PE) is investment in company ownership that is not traded on a public stock exchange. Private equity firms typically raise funds from investors, buy stakes in businesses, work to increase their value and eventually sell those stakes.
Private equity (PE) is investment in company ownership that is not traded on a public stock exchange. Private equity firms typically raise funds from investors, buy stakes in businesses, work to increase their value and eventually sell those stakes.
How does it work?
How does it work?
A private equity firm manages a fund on behalf of investors such as pension funds, insurers and endowments. The fund invests in businesses over a multi-year period. The firm may work with management to improve operations, support expansion or make further acquisitions, before seeking an exit through a sale or stock-market listing.
A private equity firm manages a fund on behalf of investors such as pension funds, insurers and endowments. The fund invests in businesses over a multi-year period. The firm may work with management to improve operations, support expansion or make further acquisitions, before seeking an exit through a sale or stock-market listing.
What is a leveraged buyout?
What is a leveraged buyout?
In a leveraged buyout (LBO), an investor acquires a controlling stake using a combination of equity and borrowed money. The acquired business typically supports the debt with its cash flows. Borrowing can amplify returns, but it also increases financial risk and interest obligations.
In a leveraged buyout (LBO), an investor acquires a controlling stake using a combination of equity and borrowed money. The acquired business typically supports the debt with its cash flows. Borrowing can amplify returns, but it also increases financial risk and interest obligations.
How does private equity relate to M&A?
How does private equity relate to M&A?
M&A describes transactions; private equity describes a type of investment and ownership. A private equity fund can use an acquisition to buy a company, help that company acquire other businesses, and later sell it to another investor or corporate buyer.
M&A describes transactions; private equity describes a type of investment and ownership. A private equity fund can use an acquisition to buy a company, help that company acquire other businesses, and later sell it to another investor or corporate buyer.
The opportunities and the risks
The opportunities and the risks
Returns depend on the price paid, business performance, financing costs and the eventual sale price. Investments can lose value, and investors usually commit their money for years with limited ability to withdraw. Operational improvements and successful exits are not guaranteed.
Returns depend on the price paid, business performance, financing costs and the eventual sale price. Investments can lose value, and investors usually commit their money for years with limited ability to withdraw. Operational improvements and successful exits are not guaranteed.