Mergers and acquisitions

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The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

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Acquisition

An acquisition is the purchase of one company by another company. Consolidation is when two companies combine together to form a new company altogether. An acquisition may be private or public, depending on whether the acquiree or merging company is or isn't listed in public markets. An acquisition may be friendly or hostile.

Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company's board of directors, employees and shareholders. It is quite normal for M&A deal communications to take place in a so called 'confidentiality bubble' whereby information flows are restricted due to confidentiality agreements (Harwood, 2005). In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, turn friendly at the end, as the acquiror secures the endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. Another type of acquisition is reverse merger, a deal that enables a private company to get publicly listed in a short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful.[citation needed] The acquisition process is very complex, with many dimensions influencing its outcome.[1] There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications:

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