With mergers and acquisitions, the current operations of a business are taken over; therefore, it does not require establishing a customer portfolio, building a reputation, finding new employees, and designing new procedures, processes, systems, and infrastructure.
This process can be conducted in two forms: merger or acquisition.
a) A merger is the economic and legal integration of at least two or more companies that are legally independent. In case of a merger, both the transferee company and the transferor companies lose their previous legal entities, and they become a part of the new company.
b) In the acquisition, on the other hand, the acquiring company retains its title and legal entity and gets all the assets and resources of the company it has acquired. The acquired company is legally terminated.
M&A TYPES :
Mergers may occur in three ways based on the sectors in which the involving companies operate:
1. Horizontal Mergers
It happens when companies operating in the same sector perform an M&A process. Such mergers can accelerate monopolization in the markets as they lead to a decrease in the number of competing companies in the same sector. The acquisition of 75.5% of Tekstilbank's shares by the Industrial & Commercial Bank of China for USD 313.8 million in 2014 is an example of a horizontal merger.
2. Vertical Merger
It is a merger of companies operating in different stages of the production process. If there is a buyer-seller relationship between the involved companies, or if the company merges with its own supplier, this is called a vertical merger. The main purpose of such mergers is to eliminate any possible disruption in the production stages and to reduce the inventory costs and thus the overall costs. In 2014, Toyota Tsusho acquired Plasmar Plastic Company.
3. Conglomerate Mergers
Mergers of companies operating in different sectors or in different geographical regions are called conglomerate mergers. This is the most common merger type in the last 50 years. Fiba Group acquired 50% of Florence Nightingale Hospitals in 2014 and invested in a different sector.
Conglomerate mergers can occur in 3 ways:
a) Market-Extension Merger: It is the merging of two companies selling the same product in different markets.
b) Product-Extension Merger: It is the merging of two companies selling different but related products in the same market.
c) Other Conglomerate Mergers
BENEFITS OF M&AS TO INVOLVING PARTIES:
Mergers and acquisitions offer numerous benefits to both transferee and transferor parties. Some of the advantages are as follows:
* Acquiring technology and know-how
* Access to new markets by completing the product range and gaining industry experience
* Access to working capital
* Access to new distribution channels and expansion of distribution network
* Eliminating the competitors in the market
* Providing a source of liquidity for investors and shareholders
* Possibility to get a good return on investment quickly
* Achieving scale economy
* Accessing a wider customer portfolio quickly
* Achieving sustainable growth
* Increasing production capacity
* Guaranteeing raw material supply
* Increasing earnings per share
When the investment decision is correct and the processes are well-managed, M&As can be faster, more effective, and more efficient investment methods compared to the uncertainties of incorporating a new company.
Zuhal Karabulut / Director