• M & A: merger and acquisition

merger

a combination of two or more businesses on an equal footing that results in the creation of a new reporting entity formed from the combining businesses. The shareholders of the combining entities mutually share the risks and rewards of the new entity and no one party to the merger obtains control over another. Under Financial Reporting Standard 6 (the United Kingdom), “Acquisitions and Mergers”, to qualify as a merger a combination must satisfy four criteria:

• no party is the acquirer or acquired;
• all parties to the combination participate in the management structure of the new entity;
• the combining entities are relatively equal in terms of size;
• the consideration received by the equity shareholders of each party consists primarily of equity shares in the combined entity, any other consideration received being relatively immaterial.

acquisition or take-over

the take-over of one company by another. Take-overs are sometimes financed by paying cash at an offer price in excess of the market price of the shares, but more frequently for large acquisitions, by the exchange of shares, possibly with some cash adjustment, issued by the acquiring company for the shares of the acquired company. The term “acquisition” is normally used to imply that the take-over is made on the initiative of the acquirer and often without the full agreement of the acquired company, as distinct from a merger.

Mergers and Acquisitions are of several different types: horizontal, if both firms produce the same commodity or service for the same market; market-extensional, if the merged firms produce the same commodity or service for different markets; or vertical, if a firm acquires or merges with either a supplier or a customer. If the merged business is not related to that of the acquiring firm, the new corporation is called a conglomerate.

The reasons for Mergers and Acquisitions are various. The acquiring firm may seek to eliminate a competitor; to increase its efficiency; to diversify its products, services, and markets; or to reduce its taxes. Merger activity varies with the business cycle, being higher when business is good.

equity (capital)

the part of the share capital of a company owned by ordinary shareholders