Mergers & Acquisitions

Mergers & Acquisitions (abbr. M&A) are the financial transactions which aim is to create a company with the assets value increasing the total value of assets of two companies that are taking part in the transaction.

Acquisition

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

Merger

It is the combination of two companies of about the same size into the larger one. They agree to go forward as a single company rather than remain separately owned and operated. Such combinations are commonly known as "merger of equal". Both companies' stocks are surrendered and new company stock is issued in its place

Types of M&A transactions

• vertical * occurs when firms in industries at different stages of bringing a good to the final consumer, i.e. extractive, manufacturing or distribution, join together.
• horizontal * occurs when the firms are in the same industry.
• conglomerate * is an amalgamation of firms with dissimilar activities.

World's 10 largest M&A deals

Rank

Year

Purchaser

Purchased

Transaction value (in mil. USD)

1

1999

Vodafone Airtouch PLC

Mannesmann

172,200

2

2008

BHP Billiton

Rio Tinto

147,400

3

2000

America Online

Time Warner

112,100

4

1999

Pfizer

Warner-Lambert

118,900

5

2006

AT&T

BellSouth

101,900

6

2007

Royal Bank of Scotland; Fortis; Banco Santander

ABN AMRO

95,600

7

1998

EXXON

MOBIL

85,600

8

2000

Glaxo Wellcome

SmithKline Beecham

79,600

9

1998

SBC Communications

Ameritech

76,200

10

1998

Bell Atlantic Corp

GTE

74,600

References

• Nahavandi, A., & Malekzadeh, A. R. (1988). Acculturation in mergers and acquisitions. Academy of management review, 13(1), 79-90.

Author: Piotr Lusiński