What Are M&A Transactions?

M&A transactions refer to the acquisition by a different company of a business, usually in exchange for cash or shares. The aim is to gain an advantage that can last for a long time in the market. It may not be the best m&a transactions option for all strategic goals, but companies who understand its benefits and utilize it correctly can experience significant growth.

M&A allows companies to achieve economies of scale. It’s the phenomenon that «one plus one is more than two.» Facebook for instance was able to tap into a brand new customer base when it bought WhatsApp and Instagram. It did not need to spend a lot of money on the development of these services. It also increased its size and market reach, which boosted its bargaining power when dealing with clients or suppliers.

Another popular motive is empire building managers have the incentive to buy companies that will increase their market share or lessen competition. This strategy can be very successful if it is done in the context of well-defined goals and with proper financial predictions.

M&A can also aid companies to be successful and survive in turbulent markets. As credit quality declined the banks began to merge to shield themselves against the Great Recession from 2008-2011. It can also be used to diversify revenues by buying a company from an industry or region. Retail companies, for example, often acquire companies that specialize in technology or ecommerce to enter into new markets and increase revenues. A common error is to treat M&A as a purely financial tool, without regard to the strategic value that it creates.