Merger and Acquisition is presently a popular method in the market for company growth and attracting new customers.
We are witnessing high private equity activity. Trends for mergers and acquisitions are being modified every year, therefore it is important to stay informed and updated before making any decision about the company’s future.
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What are Merger – Definition, and Explanation
It is a process through which two or more companies combine to become one single entity.
Merging of the company involves the transfer of ownership, exchanging stocks, and cash transactions between them.
It is a type of financial strategy which mostly occur within the company of the same or related sectors.
The process of Merger requires two parties; one is the Acquired Company and the other is Acquiring Company.
The Acquired Company is the one that submits its majority of equity shares to the latter.
The Acquiring Company is the one that purchases the majority of the equity share of the former company.
Types of Mergers
Based on the links between the target company’s business and the merger business, there are five types of Merger:
1. Congeneric Merger
A congeneric merger is when there is the addition of a new product to the existing product line of one company.
Because of this union, both companies have access to a large range of customers which helps in increasing their market share.
2. Conglomerate Merger
It is the company’s union serving different sectors or operating independent activities.
This merger is only possible when there is a high chance of wealth profit for the shareholders.
3. Market Extension Merger
When the companies operate in different markets but sell the same products, they unite to access a larger market and customer base.
4. Horizontal Merger
A horizontal merger is like a consolidation of a few companies that sell the same product or provide similar services.
The merging of the few companies operating in the market gains profit. This also helps in eliminating competition that results in achieving a high economy.
5. Vertical Merger
A vertical merger involves different companies that operate in the same market but at various levels in the supply chain.
This kind of merger occurs to increase the synergies, cost efficiency, and supply chain.
What is Acquisition: Definition and Explanation
A business Acquisition occurs when a company buys either all the shares of the company or most of it.
When half of the target company’s stock is purchased, the company which has Acquired has the power to make decisions for the company’s future without any consultation or meeting with the targeted firm shareholder.
The acquisition is a common practice in the market and generally, the target company’s approval has been considered before taking any major steps toward the change in the company.
When both companies agree on Acquisition, the Acquiring company establishes a no-shop clause to ensure the seller does not request purchases from other companies in the market.
For example, News networks mostly focus on the acquisition of big and well-established companies because these deals are very important.
Types of Acquisition: Overview and Explanation
Based on the links between the target company’s business and the acquirer’s business, there are three types of acquisitions:
There are three types of Acquisition based on the relationship between the business of the target company and the Acquirer’s business.
- Horizontal Acquisition
- Vertical Acquisition
- Unrelated Acquisitions
Horizontal Acquisition and Vertical Acquisition are often referred to as related acquisitions.
In both these acquisitions, two companies are still operating in the same supply chain.
1. Horizontal Acquisition
The target company is the best competitor in the market for the Acquirer because of its net worth and growth.
This strategy is advantageous in boosting market power or market share. It is also economically beneficial for both companies.
2. Vertical Acquisition
The Acquirer company purchases the company which is in the same supply chain, the target company being the product supplier, distributor, or retailer.
This strategy tends to add value to the chain and make the service more efficient. The acquirer might buy the distributors in the market and dominate and rise above their competitors.
3. Unrelated Acquisition
This tactic involves two companies of different businesses and with different supply chains.
For example, a big mining company might acquire an electric company. This strategy diversifies the income sources and reduces the risk in one business.
If the business of mining fails in the future, the owner still has the electric company to generate income.
Recent Trends in Mergers and Acquisitions
The most popular and major mergers and acquisitions in 2019 are:
- Walt Disney formally completed the acquisition of 21st Century Fox for 71.3 billion US dollars.
- InMobi Group, backed by SoftBank, has acquired video content platform Roposo.
- According to the merger agreement between Bristol-Myers Squibb (BMY) and Celgene (CELG), Bristol-Myers Squibb will pay $74 billion to acquire Celgene.
- Saudi Aramco approved a $69 billion share purchase agreement to acquire the Public Investment Fund of Saudi Arabia’s 70% stake in Saudi Basic Industries Corporation (SABIC).
- In a deal worth $70 million, PayU acquires Wibmo.
The most popular and major mergers and acquisitions in 2020 are:
- H.J. Heinz Co. and Kraft Foods Group merged to form a new company (The Kraft Heinz Company)
- Amazon expanded its already keen interest in self-driving cars by announcing in June that it would acquire Zoox for $1.2 billion.
- ITC purchased all of the equity shares in Sunrise Foods Pvt. Ltd. for Rs. 2,150 crores.
- Jio Platforms received a $5.7 billion investment from Facebook, giving Jio a 9.99% stake.
- Hindustan Unilever Limited merged with GlaxoSmithKline Consumer Limited, paying the latter Rs. 31,700 crores in addition to Rs. 3,045 crores to acquire the Horlicks trademark for itself.
The most popular and major mergers and acquisitions in 2021 are:
- Symphony Technology Group (STG) has agreed to complete its acquisition of McAfee for 4.0 billion US dollars.
- Boston Dynamics, a pioneer in robotics, has been acquired by Hyundai Motor Company. Chang Song, the company’s president, envisions a time when robots and people will work together closely on a variety of tasks.
- BillDesk, an Indian provider of payment services, was acquired by Proses for $4.7 billion.
- SB Energy Holdings Limited (SB Energy India) was acquired by Adani Green Energy Limited for $3.5 billion.
- PharmEasy acquired Thyrocare for $610 million.
The most popular and major mergers and acquisitions in 2022 are:
- Oddity, a German digital marketing, experience, and commerce agency, has agreed to be acquired by Infosys.
- RIL invested 54% of its capital in the Noida-based startup Adverb.
- Tech Mahindra announced a deal for the tech company worth approximately Rs 322 crores (USD 42 million) for a 100% stake.
- The merger of PVR and Inox was announced in March.
- Recently, two IT businesses—Larsen and Toubro Infotech and Mindtree—merged to create the sixth-largest IT conglomerate in India.
Culture of M&A
During an M&A integration, the workforce of any company experiences significant change. And it is most likely affecting employees. Leaders must assess the underlying cause of exhaustion of the employees and how they feel about their jobs.
- Integrate your cultural foundation into employee incentives and leadership.
- Address urgent issues affecting your workforce.
- Evaluate the opportunities to adapt in the future by learning lessons from your current difficulties.
Blockchains introduce powerful digital technology that can instantly record and verify transactions in real-time, which offers a lot to make M&A transactions economically advantageous. “Blockchains” have the power to completely alter how investors evaluate assets, conduct negotiations, and complete deals. The advantages of a blockchain ultimately outweigh the expenses and risks. Here’s how blockchain upends the M&A deals:
- Blockchains provide a database that is shared digitally by all users and is immutable. An irreversible and permanent record of the data can be made with the use of a blockchain database. Additionally, data connectivity is improved. Additionally, the decentralized nature of blockchain protects the exchange of intellectual property.
- A smart contract on the blockchain serves as a decentralized, cryptographically secure way to transfer assets and control corporate operations without the need for human intervention. Smart contracts uphold governance and improve the level of trust and transparency in the workplace. Furthermore, smart contracts can be useful for post-closing tasks like money transfers following merger agreements.
- Tokenization allows for the digital transfer of tangible assets from one owner to another on a blockchain network. However, it now provides a way to share ownership. Through this network, individuals and groups can invest in and even buy partial ownership of assets.
What is the recent trend in modern mergers and acquisitions?
Technology is still a determining factor in shaping industries all over the world. As more businesses continue to enter the market and observe market share, M&A deals continue to be influenced. Firms with limited technological advancement seek to acquire firms with a strong technology hold that has a significant impact on M&A activity. Recently Virtual M&A play an important role because of its creative approach to managing team meetings and other facilities. It is cost-efficient and speeds up the process. More Private equity companies are committed to enhancing their ESG, Environment, and Social Governance positions.
Which industry has the most mergers and acquisitions?
Healthcare: The Healthcare industry is rapidly growing with the guidance of government legislation. Because some small and medium-sized businesses lack the necessary capital to compete with larger corporations, mergers and acquisitions are common in this industry.
Technology: The technology sector is developing so rapidly that it requires massive financial support from all sides for businesses to keep up with the changes and remain competitive.
Retail: This industry is quite repetitive. The performance of retail businesses is heavily influenced by general economic conditions. This industry needs constant support from mergers and acquisitions to back them up.
Which platform for blockchain-based M&A is best?
Star Apple Labs Limited is a DAO (decentralized autonomous organization) and with the help of Blockchain technology, enables businesses to carry out simple merger and acquisition processes.