Mergers and acquisitions (M&A) are transactions in which ownership of a company, business unit, or assets is transferred or combined with another entity1. They are a major tool of corporate strategy used to expand, diversify, restructure, or strengthen a company’s competitive position1.
Key distinctions
A merger combines two entities into one legal entity1. An acquisition occurs when one company buys another’s shares, equity, or assets1. Consolidation or amalgamation creates a new enterprise, with neither original company remaining independent1.
Common forms
M&A may be friendly or hostile depending on whether the target board supports the deal1. They can involve public or private companies1. Special cases include reverse takeovers and reverse mergers, which can allow a private company to become publicly listed1.
Outcomes and challenges
M&A success is often difficult to achieve, and many acquisitions fail1. Serial acquirers often perform better than occasional acquirers1. Shareholders of target firms often gain significant returns, while acquiring firms may face short-term losses1. Overall, M&A can create value by placing assets under more effective management1.
Overview
Due diligence is a core pre-transaction process in M&A used to investigate the target’s finances, operations, legal exposures, and valuation drivers before closing.1 It helps buyers identify risks, test assumptions, and negotiate terms with better information.1