A recent survey by Deloitte revealed one big strategy businesses will use to recover post-COVID-19. 56% of corporate executives are focused on new Mergers and Acquisitions (M&A) deals.
If you’re new to the term M&A, you may be wondering: what are the different types of mergers and acquisitions out there? We’re answering this question and more in this guide, so you better keep reading.
The Types of Mergers and Acquisitions Explained
Mergers and acquisitions can help companies improve their financial performance, restrict supply, increase competition, and accelerate growth. Learn more about the different types of mergers and acquisitions below.
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Mergers
A merger is an agreement between two companies that they will fuse and become one company. There are many different kinds of mergers, including the five we’ve listed below.
- Horizontal mergers: when two direct competitors merge
- Vertical mergers: when two companies that use the same supply chain merge
- Market-extension mergers: when two companies providing similar products or services to different markets merge
- Product-extension mergers: when two companies providing related products or services to the same market merge
- Conglomerate mergers: when two unrelated companies merge
When one company absorbs another in a merger, the newly-formed entity usually takes on the larger company’s name. The stock would then trade under the larger company’s ticker.
Acquisitions
Acquisitions occur when an acquiring company purchases a majority stake in a target firm. The company can purchase the firm’s shares in cash. Alternatively, it can trade its stock for a majority stake in the target firm’s stock.
In an acquisition, the target firm doesn’t change its name and, usually, ticker. Instead, the target firm exists as a semi-autonomous subsidiary of the acquiring company.
Another type of acquisition is the acquisition of assets. In this type of acquisition, the acquiring company purchases the physical assets from a target firm. Often, the target firm is undergoing bankruptcy.
Management-led buyouts (MBOs) are acquisitions in which one company’s executive board buys a controlling interest in another firm. Typically, the executives then take that firm private. MBOs are usually funded with debt.
Consolidations
Consolidation takes place when two companies merge to become a brand new company. This new company is referred to as a conglomerate. Conglomerates tend to take on new names and tickers once the consolidation is complete.
Tender Offers
Tender offers are unique buyouts. That’s because they bypass the company’s management and board altogether, making an offer straight to the shareholders.
The tendering company makes an offer to buy all outstanding shares at a specific price. Usually, this price is less than the actual market price of the outstanding stock.
Most tenders are mergers. In other words, when a tendered company gets bought up, the acquiring company absorbs it. The tendered company then takes on the acquiring firm’s name and ticker.
Learn More About M&A
We’ve barely scratched the surface of the types of mergers and acquisitions out there in this guide. So, if you want to keep learning about M&A, keep scrolling for articles like this one!
