Mergers and Acquisitions: Strategies and Process

Posted on Mar 24, 2025 in Business Administration and Management (BAM)

What is M&A?

M&A (Mergers and Acquisitions) refers to the process of consolidating companies or assets through different types of financial transactions. Several ways this can happen include:

  • Merger: Two companies combine into one or create a new joint entity.
  • Acquisition: One company buys another and takes full control.
  • Consolidation: Multiple companies merge into a single entity.
  • Tender Offer: A company offers to buy another, paying in cash or shares.
  • Asset Purchase: A company buys only key assets from another.
  • Management Buy-Out (MBO): The management team buys the company from its owners.

Why Do Companies Engage in M&A?

The main reasons include:

  1. Rapid Growth: Expanding without having to develop new products or markets from scratch.
  2. Synergies: Combining operations to increase efficiency and reduce costs.
  3. Supply Chain Control: Acquiring suppliers or distributors to reduce costs and improve margins.
  4. Eliminating Competition: Reducing the number of competitors in the market.
  5. Diversification: Expanding product lines, markets, or reducing financial risks.

Types of Mergers and Acquisitions

Depending on how the transaction is structured, M&A can take several forms:

  1. Pure Merger: Two companies combine to form a new entity.
  2. Acquisition with Independence: One company buys another but keeps its brand and operations.
  3. Reverse Merger: The acquired company becomes the main entity and may change the acquirer’s name.
  4. Asset Purchase: Only specific parts of the business are sold instead of the entire company.

Famous Examples

  • Disney acquired Marvel and Pixar to expand its movie and character catalog.
  • Facebook acquired WhatsApp and Instagram to strengthen its presence in social media.

Key Factors for a Successful M&A

For an M&A deal to be successful, it is essential to:

  • Set clear and realistic objectives about what the merger or acquisition should achieve.
  • Identify synergies that will bring benefits by combining both companies.
  • Ensure cultural and management alignment between the two organizations.
  • Plan effectively both before and after the merger.
  • Communicate clearly with employees, customers, and stakeholders.

M&A Cycles and Economic Impact

Mergers and acquisitions often follow economic cycles:

  1. During economic booms: More acquisitions take place because there is more cash available and greater confidence in the market.
  2. During economic downturns: Acquisitions slow down due to reduced liquidity and higher financial risks.

Certain industries, such as technology, healthcare, and energy, tend to experience M&A activity even during economic crises.

What is M&A?

M&A stands for “Mergers and Acquisitions.” It refers to the process in which one company buys another, or they merge to form a new entity.

Types of Acquisitions

  1. Investment Agreement: A private agreement between companies.
  2. Asset Purchase: Buying a company’s assets without acquiring the entire business.
  3. Stock Purchase: Acquiring the shares of the target company.
  4. Merger Agreement (One-Step): A direct merger between two companies.
  5. Merger with Tender Offer: An offer made to shareholders to sell their shares.

What is a PTO or OPA?

  • PTO (Public Tender Offer) or OPA (Oferta Pública de Adquisición in Spanish) is when a company offers to buy shares of another publicly traded company.
  • There are friendly takeovers (when the target company accepts the offer) and hostile takeovers (when the target company rejects the offer, and the buyer tries to convince shareholders directly).

Example:

  • In 2017, Atlantia attempted to acquire Abertis for €16.3 billion.
  • ACS made a higher bid of €18.6 billion, leading to a joint acquisition of Abertis by both companies.

Defense Strategies Against Hostile Takeovers

  • Poison Pill: Issuing more shares to make the acquisition more expensive.
  • White Knight: Finding a more favorable buyer.
  • Share Buyback: The company repurchases its own shares to prevent acquisition.
  • Golden Parachute: Key executives receive huge compensation if they are dismissed after the takeover.

Example:

  • In 2008, Yahoo used a poison pill against Microsoft, forcing Microsoft to withdraw its bid.

Regulations and Legal Framework

  • In the U.S., the Williams Act (1968) regulates public takeovers.
  • In Spain, the CNMV (National Securities Market Commission) oversees public acquisitions.
  • 30% Rule: If an investor reaches a 30% stake in a listed Spanish company, they must launch a mandatory tender offer.

M&A Process (Private vs. Public Sale)

  1. Letter of Intent (LOI): An initial document outlining basic deal terms.
  2. Due Diligence: A thorough audit of the target company (finances, taxes, contracts, etc.).
  3. Sales & Purchase Agreement (SPA): The final purchase contract, including clauses on warranties, price, and conditions.

Hostile Takeover Example: Broadcom vs. Qualcomm

  • Broadcom offered $105 billion to acquire Qualcomm.
  • Qualcomm rejected the offer, arguing that it undervalued the company.
  • Broadcom attempted a Proxy Battle (directly appealing to shareholders).