Mergers and acquisition transactions are an integral part of the corporate world. They are used to expand businesses, acquire new companies, and create synergies between two different entities.
There are several types of acquisitions and merger deals. In this article, we will discuss the three most common types of M&A deals.
1) Buyout: This is a merger where one company buys out another company for its assets or shares. The buyer usually pays more than what it would have paid if it had bought only the stock in that company. For example, when Ford Motor Company acquired Volvo Cars from 2010-2014, they paid $4 billion dollars for Volvo’s shareholding. However, if Ford had just purchased Volvo’s shares on their own, then they would not have been able to pay as much money because there was no value added by buying the entire business instead of purchasing only the shares.
2) Takeover: A takeover occurs when one company acquires all the outstanding shares of a target company through a tender offer. It can also be called hostile acquisition. Tender offers are often made by large corporations who want to buy smaller firms or the target company with high growth potential. These tenders may include cash payment, debt financing, or even equity investment. If successful, these takeovers result in higher profits for shareholders.
3) Spinoff: When a firm splits into separate parts, it becomes known as a spin-off. An example of a spin-off deal is when Apple Inc split itself up into 3 separate companies – iPhone maker, iPad maker, and Mac maker. Another example is when Microsoft Corp spun off its Windows division into a separate entity named “Windows 10”.
The first type of M&A deal involves a buyout. Here, one company purchases the target company completely. There are many reasons why companies decide to do so. One reason could be due to lack of capital; another reason could be due to strategic decisions such as diversification or expansion. Companies like Dell Computer Corporation, which has faced financial difficulties over the years, decided to sell themselves to private investors. Similarly, IBM sold its PC unit to Lenovo Group Ltd., while Hewlett Packard Enterprise Co. sold its enterprise services group to Xerox Holdings PLC.
The second type of M&A deal involves taking over a target company. This happens when a larger companies take control of a small company. Usually, the target company does not get any compensation for selling its shares. Instead, the acquiring company makes a profit by paying less than the market purchase price. Some examples of this kind of transaction include AT &T’s purchase of BellSouth, General Motors’ purchase of Daewoo Automotive, and Walmart Stores’ purchase of Sam Walton’s family-owned retail chain Walmart.
Companies such as Google and Facebook make acquisitions to acquire the expertise of key staff and intellectual property of the target company.
Attractiveness depends on what the acquiring company wants to get from buying the target company, and what the acquiring company thinks it can do with such an acquisition.
In some cases, both parties involved in a merger agree upon a certain percentage of ownership before the actual sale. This is done to ensure fairness among the partners. Such agreements are referred to as joint ventures. Examples of joint venture transactions include Toyota Motor Corporation’s partnership with Mazda Motor Corporation and BMW AG’s partnership with Daimler AG.
Finally, the third type of M&A transaction involves splitting apart a single company into multiple ones. This process is known as spinning off. An example of this kind of transaction includes Apple Inc’s decision to split itself into 3 separate companies – iMac maker, iPod maker, and iOS software developer. Other examples include Google Inc’s separation of Android OS development from search engine operations and Facebook Inc’s separation into 2 separate entities – social networking site and mobile app platform.
What Is Business Valuation?
Business valuation refers to the practice of determining how much money should be paid for a business. The value that you assign to your business depends on what factors you consider important. For instance, if you own a restaurant franchise, then you might think about the following aspects when valuing your business:
1) How long have you been operating your business?
2) What was the initial cost of opening your business?
3) Do you plan to continue running your business after buying it?
4) Are there any debts associated with your business? If yes, how big are they?
5) Does your business generate enough revenue to cover all expenses?
6) Will you need additional financing to run your business?
7) Have you ever tried to sell your business? If yes and no, explain why.
8) Has anyone offered to buy your business? If yes who did offer to buy your business? Why would someone want to buy your business?
9) Would you rather keep your current business or start-up something else? Explain why.
10) What is the total number of employees at your business right now?
Mergers and Acquisition Deals and Business Valuation
When evaluating whether to pursue a deal, one must first determine whether he/she wants to merge his/her existing business with another entity. Once such decisions have been made, the next step is to decide which type of acquisition deal is best suited for him/her. There are many ways to approach these issues. However, here are some basic guidelines that can help you make better choices.
First, do not assume that just because a particular deal sounds good, it actually is. You may find yourself regretting having pursued the deal later down the road. It is always wise to weigh the pros and cons of each option carefully.
Second, remember that every situation is unique. Therefore, try to avoid making hasty decisions based solely on emotion. Always take time to analyze the facts thoroughly so that you can come out with sound conclusions.
Third, never forget that the ultimate goal of any business owner is to maximize profits. Thus, whenever possible, look for opportunities where you could increase revenues while minimizing costs.
Fourth, realize that even though acquiring other firms may seem like a great idea, it does not mean that you will automatically become more successful by doing so. Sometimes, merging with another firm may lead to lower profitability than expected.
Fifth, before deciding whether to accept a merger proposal, ask yourself whether you really need to change anything in order to succeed. Remember that sometimes, simply changing the name of your business can improve its chances of success significantly.
If you are considering pursuing a merger or acquisition deal, it is essential that you understand the various options available to you. This way, you can choose the best course of action for your company’s future growth.
Transworld Business Advisors is a full-service firm that provides a wide range of services including mergers and acquisition deals to clients throughout the United States. If you are looking for a business broker, Transworld Business Advisors can help you find the right business for you. Our team of experts has helped thousands of entrepreneurs and business owners find success through our services. We can help you find the perfect business for you. Call us today to get started!
