Meaning and Definition of Mergers and Acquisitions

Mergers and acquisitions refers to the aspect of corporate approach, corporate business and management dealing with the buying, selling and merging of different companies that can support, build, finance, a developing company in a certain industry develop quickly without having to create another business entity. Merger is a tool used by companies for the purpose of expanding their operations with the aim of increasing their profitability. Mostly mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the buyer in a due diligence process to confirm that the deal is valuable to both parties. Acquisitions can also happen over a inimical buyout by buying the mainstream of outstanding shares of a company in the open market beside the desires of the target's board. In the United States, business laws vary from state to state whereby some companies have limited security against inimical takeovers. One form of security against a inimical takeover is the shareholder rights plan, else known as the "poison pill".

Acquisition may be only somewhat unlike from a merger. In fact, it may be unlike in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, productivities and improved market visibility. Unlike all mergers, all acquisitions involve one firm buying another - there is no exchange of stock or alliance as a new company. Acquisitions are often hospitable, and all parties feel pleased with the deal. Other times, acquisitions are more unfriendly. In an acquisition, as in almost all of the merger deals we discuss above, a company can buy an additional company with cash, stock or a combination of the two. Another option, which is common in smaller deals, is for one company to acquire all the assets of the other company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter additional area of business.

One more type of acquisition is a reverse merger, a deal that allows a private company to get publicly-listed in a fairly short time period. A reverse merger occurs when a private company that has strong views and is eager to increase financing buys a publicly-listed shell company, typically one with no business and limited assets. The private company reverse joins into the public company, and together they become a completely new public corporation with tradable share.

The corporate sector all over the world is reforming its operations over different types of amalgamation strategies like mergers and acquisitions in order to face tasks posed by the new pattern of globalization, which has led to the superior integration of national and international markets. The power of such operations is growing with the de-regulation of various government strategies as a organizer of the neo-liberal economic system. Earlier also the businesses were widely using alliance strategies, but one of the striking features of the present wave of mergers and acquisitions is the presence of a large number of cross-border deals. Historically, mergers have often failed to add meaningful value of the acquiring firm's shares. Corporate mergers may be intended at reducing market rivalry, cutting costs (for example, resting off employees, operating at a more technologically effective scale, etc.), reducing taxes, eliminating management, "empire building" by the acquiring directors, or other devotions which may or may not be steady with public policy or public welfare. Thus, they can be severely regulated, for example, in the U.S. needing approval by both the Federal Trade Commission and the Department of Justice.

The rise of globalization has exponentially improved the market for cross border M&A. In 1996 alone there were over 2000 cross border dealings worth a total of approximately $256 billion. This quick increase has taken many M&A firms by surprise because the majority of them never had to consider acquiring the capabilities or skills required to efficiently handle this kind of deal. In the past, the market's absence of connotation and a more strictly national mindset barred the vast majority of small and mid-sized companies from considering cross border intermediation as an option which left M&A firms inexperienced in this field. This same reason also banned the development of any widespread academic works on the subject.

Due to the complex nature of cross border M&A, the huge mainstream of cross border actions have ineffective results. Cross border intermediation has many more levels of difficulty to it than regular intermediation seeing as corporate governance, the control of the average employee, company guidelines, political features, customer expectations, and countries' culture are all essential factors that could spoil the contract.