M & A Merger Analysis

One of the key goals of business strategy is growth. There are many ways in which a company can grow, but one of the most effective and rapid methods is through mergers and acquisitions (M&A). M&A is a general term used to refer to the consolidation of companies. The term M&A typically includes any business combination in which a company obtains capital in the form of equity and/or debt, or in which the company, or a portion of the company, is acquired. Specifically, an acquisition is the buying of one business entity by another, and a merger is when companies combine to form a new company. M&A also refers to the department of a financial institution that sets up and brokers such deals.

A true merger is quite rare. The most famous example of

In 2002, the dot-com bubble burst, resulting in a reduction in the value of the new company's internet division and causing a loss of $99 billion. The resulting lack of capital meant that AOL/Time Warner was unable to invest and capitalize on the opportunities offered by higher speed broadband connections. The new company also experienced severe problems integrating and managing a diverse business portfolio. In 2009, the troubled association between the two companies came to an end, as AOL once more became a separate entity, offering a valuable lesson to those who would venture into the murky world of M&A.

According to “The report, Riding the Next Wave in M&A: Where Are the Opportunities to Create Value?” by BCG that was released on 11th June, 2011, despite that value of acquirer gets destroyed by an average merger, some phenomena can be found that result in the value creation for minority of acquisition. One unexpected conclusion of the report is that acquirers are more likely to create value when they buy targets abroad. Less unexpected is the finding that long-term returns are higher on average when acquirers buy targets in their core sector—the returns are usually lower when they diversify into new

As seen from experience M&Aare sparked by economic factors.There are five stages of the merger evolvement:

First Wave Mergers

The first wave of M&Aswas from 1897 to 1904. Mainly horizontal mergers between heavy manufacturing industries took place during this phase.

Mergers during this phase were majorly failures due to nonachievement of desired synergies. These failures resulted in an economic slowdown and ended with the stock market crash in 1904.Use of Sherman Act became necessary to bar anticompetitive mergers.

Second Wave Mergers

Duration of the second wave of mergers was from 916 to 1929. In contrast with the earlier phase, the mergers in this phase were concentrated on oligopolies. The economic boom that followed the post-World War I gave rise to these mergers. Technological developments along with positive government policies encouraged the phenomena of merging two entities.

The 2nd wave mergers that took place were mainly horizontal or conglomerate in nature.The industries that went for the merger during this phase were producers of primary metals, food products, petroleum products, transportation types of equipment and chemicals. The investments banks played an integral role in facilitating the