Mergers and Acquisitions (M&A) refers to the aspect of corporate strategy, corporate finance, and management dealing with the buying and selling of different companies and similar entities that can help an enterprise grow rapidly. M&As are a form of inorganic growth.
Mergers and Acquisitions (M&A
Mergers and Acquisitions (M&A) refers to the aspect of corporate strategy, corporate finance, and management dealing with the buying and selling of different companies and similar entities that can help an enterprise grow rapidly.
Mergers and Acquisitions have, at times, failed to add as much value as initially imagined by the parties involved. Acquiring a company involves integrating two businesses, which can take time and slow both companies down. When considering a M&A it's helpful to consider the "Better-Off Test" which goes something like this: Do the business units create and capture more value if they are related than they could as separate, single-business entities without formal ties?
Factors that matter include lower costs–shared activities, shared resources, economies of scale or scope-, and increased willingness to pay.
The Better Off Test in the context of horizontal scope: Can a firm achieve lower average costs or higher average prices by including multiple business units in same firm?
Economies of scope (aka, synergies) make product diversification efficient if they are based on a similar common use. For example, as the number of products promoted is increased, more people can be reached for dollar spent.
Diversify if (cost of having units A & B in same firm) < (cost of unit A in firm A) + (cost of unit B in firm B) - Boost in Willingness To Pay (aka, cross-selling) - Diversify if (WTP of activities A & B if done in same firm) > (WTP of activity A in firm A) + (WTP activity B in firm B)