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M&A 101

By Jeffrey Long

The world of Mergers and Acquisitions for non-Mergers and Acquisitions people.

Jeffrey Long

Jeffrey Long

Southern Region Mergers & Acquisitions Lead
Part One

Introduction to M&A

M&A stands for Mergers and Acquisitions. M&A is often perceived to be overly complex and shrouded in mystery and magic, known only to those in the inner sanctums of corporate finance, who use all the fancy acronyms and euphemisms. Hopefully, this short introductory course, will shed some light on the world of M&A.

Of course, if this spikes an interest and you’d like to know more, or you are currently going through an internal M&A process, or if something doesn’t make sense, please do get in touch and I would be glad to have a chat.

What Does M&A Stand For?

At its simplest, M&A is just a popular catch all phrase for the buying and selling of companies or parts thereof.

Traditionally, a ‘Merger’ was the amalgamation of two or more equal entities who would retain an equal share in control of the new combined entity. However, these ‘pure’ mergers are rare in today’s world. Most of the transactions that take place fall under the ‘Acquisition’ category of M&A. An Acquisition is when a company purchases a part of (or all of) another business, irrespective of relative size.

If you want to be really fancy and impress people in the corporate financial world, you can also refer to M&A by its formal long name: Mergers, Acquisitions and Divestitures. Divestiture is the opposite of Acquisition and describes when a company decides to sell part of (or all of) its business to another company.

Why Do Companies M&A?

We go into this in more detail later on but essentially, M&A is often seen as an attractive growth strategy for companies. Companies grow organically, by creating and selling a sound product or service. M&A can provides a short cut through this growth process by allowing companies to purchase existing clients, products, services, sales, profits etc. Put differently, M&A is done with the intention of attaining business benefits such as increased market share, reduced joint operating costs, supply and value chain integration as well as product, client or service diversification.

Slavishly pursuing growth is never enough, though. There needs to be a 1+1=3 – a way for a new owner to get more value from the target business than the previous owner. M&A is expensive – like buying a house – so you need the returns to make that investment worthwhile, too.