Mergers and Acquisitions: The Basics

Originally published on JohnJellinek.com

As companies grow, there is a natural proclivity for them to begin acquiring other businesses that could help streamline their processes or help strategically enter a new demographic. This process typically falls under the umbrella of Mergers and Acquisitions, and there is an entire field of business that focuses only on these types of deals. So what questions can be answered about these types of deals and why are they so important?

• What Are Mergers and Acquisitions?
• What Are the Benefits of M&A?
• What Are the Negatives of M&A?
• What Can Cause Them to Fail?

What Are Mergers and Acquisitions?

Mergers and Acquisitions (M&A) involve either the merging of two companies to form a new company or when one company purchases and absorbs another company to increase their market share and grow the existing business. Businesses seek to make these deals for the many benefits while others criticize the practice because of notable drawbacks.

What Are the Benefits of M&A?

Many Wall Street bankers make their entire living on facilitating mergers and acquisitions. Often part of their sales pitch are the many benefits that M&A deals can provide. First, mergers allow two companies to pick and choose the very best employees and combine them into a sort of super team. This way, the best of the best are leading the company forward.

What Are the Negatives of M&A?

While an M&A deal may bring the best teams together, it can also cause layoffs as well. Often, there are duplicate roles at both companies that may only require one person to feel that role. This often leaves one company feeling slighted by the executives and leaves a bad taste in their mouths as they begin job seeking again. In an ideal world, a position for every employee at all companies would be guaranteed, but this is rarely the case.

What Can Cause Them To Fail?

At times, Federal Regulations can get in the way of M&A deals. If the mergers are viewed as forming a trust or monopoly on a certain industry, the government may step in a block the deal altogether in the best interest of consumers that could be subject to higher prices. Often, when this happens, years-long legal battles ensue costing both the business and the federal government hundreds of thousands of dollars in legal fees.