By Business Team Last updated on August 13, 2019

What is Mergers and Acquisitions (M&A)?

Mergers and Acquisitions (M&A) is a general term which refers to the consolidation of companies or assets through various financial transactions. M&A includes different kinds of transactions, namely mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. In all cases, two firms, comprising acquiring company and acquired company, are involved.

Why do companies do Mergers and Acquisitions (M&A)?

Firstly, companies carry out M&A activities in order to take advantages of synergies. By combining business activities, the acquiring company’s performance would increase and costs would decrease thanks for added values, such as facilities or human resources, between the two entities. Essentially, a company will try its best to seek for a company that has complementary strengths and weaknesses.

Secondly, M&A is a way that companies use to get more market share. In other words, when there are many same kinds of businesses offer identical products, companies in the same industry would look for a merger in order to get a wider customer base. For example, an IT firm based in Japan purchases a Vietnamese IT firm so that it can let its footprint and speed market growth in Vietnam.

Thirdly, diversifying products and services is another reason that companies do Mergers and Acquisitions transactions. This means, by combining two firms’ current products and services together, the acquisition company can increase its customers’ experience. For instance, when Apple had a need of establishing ID Touch, it bought Authentec which was a touch control solutions company. 

Finally, mergers and acquisitions take place as a strategy of increasing supply-chain pricing power. When a company buys one of its key suppliers or its distributors, the company then can be able to save on the margins that the supplier or distributor was previously adding to the products’ costs. For a long-term period, eliminating such expenses would be the basis of earning a greater profit. For example, a restaurant chain business, instead of outsourcing ingredients, it can supply such ingredients by its own by buying its existing supplying company.

In conclusion, Mergers and Acquisitions (M&A) is believed to bring many positive advantages for the acquiring company. Depending on the business’ strategy, there will be corresponding types of merger and acquisition transactions.