The goal of any business is inevitably to make a profit. This can only be achieved if there is both vertical and horizontal growth. Naturally, organic growth is also desirable. However, organic growth, which means that the company develops from within, is incredibly slow and usually also very hard. As a result, most businesses look into the possibilities of mergers and acquisitions. If done successfully, this offers a company a kind of instant expansion.
Larger companies are always looking to see if they can find a target to acquire or merge with. Some actually have an entire department that looks at nothing else. However, this tends to only happen in very large companies, such as those listed on Fortune 500. The company’s policy will determine just how they engage in mergers and acquisitions. They may want to expand in the same market, they may want to diversify, they may want to improve their current research facilities, add more business and so on. Usually, the company director will have final say over this.
Mergers and acquisitions are very complex financial behaviors. You can learn more about company mergers through specialized companies, and by otherwise doing your own research. You may find yourself quite surprised by the long list of mergers and acquisitions that have taken place, and it can be really interesting to look into this, almost as if you were building a company’s family tree.
In most cases, the process is done together with finance analysts, lawyers, investment bankers and more. They work together to make financial projections, analysis, valuations and more. Because it is such an interesting and popular field, there are now also companies that maintain lists of businesses that are interested in acquiring, and that are interested in being acquired. Alternatively, some businesses hire private investigators, although this is more common with hostile takeovers. Hostile takeovers were very common during the 1990s and rocked the financial world. Today, however, they are much less common.
Once a company identifies a different company that they want to merge with or acquire, the negotiating starts. In an ideal world, a merger will always take place. However, this means both companies will have to give something up, or there will be duplicates. Lengthy debates often occur to determine what the new company will be called. It is when these negotiations fail that hostile takeovers take place, in which a third party is enlisted to buy a company out. While this may all sound very interesting and like something you would like to take part in, negotiations are always confidential until decisions have been made, unfortunately. This is done to prevent employee panic and to protect the stock value of the companies involved.
Reverse situations also exist. It can happen, for instance, for a company to want to go out of business. In this case, they will need to find someone who wants to buy them. This is much rarer and it is unlikely for the seller to walk away with the best terms.