A merger involves the total absorption of a target firm by the acquirer. As a result, one firm ceases to exist and only the new firm (acquirer) remains.M&A can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions.

1. Mergers and
Acquisitions by
Calvella

2. A merger involves the total absorption of a target firm by the acquirer. As a
result, one firm ceases to exist and only the new firm (acquirer) remains.
What Is Merger?

3. What is Acquisition?
An acquisition involves one firm buying only a portion of another firm. The
acquisition may happen to acquire assets or an altogether different segment of
the other firm.

4. M&A can include a number of different transactions, such as mergers, acquisitions,
consolidations, tender offers, purchase of assets and management acquisitions. In all cases,
two companies are involved. The term M&A also refers to the department at financial
institutions that deals with mergers and acquisitions. The following will review some of the
different kinds of financial transactions that occur when companies engage in mergers and
acquisitions activity.
Merger means
“to combine”,
Acquisition
means “to
acquire.”

5. M&A includes a number of different transactions, such as mergers, acquisitions,
consolidations, tender offers, purchase of assets and management acquisitions. In all
cases, two companies are involved.

6. Merger: In a merger, the boards of directors for two companies approve
the combination and seek shareholders' approval. After the merger, the acquired
company ceases to exist and becomes part of the acquiring company.
Acquisition: In a simple acquisition, the acquiring company obtains
the majority stake in the acquired firm, which does not change its name or legal
structure.

7. Consolidation: A consolidation creates a new company.
Stockholders of both companies must approve the consolidation, and, subsequent
to the approval, they receive common equity shares in the new firm.

8. Tender Offer: In a tender offer, one company offers to purchase the
outstanding stock of the other firm at a specific price. The acquiring company
communicates the offer directly to the other company's shareholders, bypassing
the management and board of directors.

9. Acquisition of Assets: In an acquisition of assets, one company
acquires the assets of another company. The company whose assets are being
acquired must obtain approval from its shareholders. The purchase of assets is
typical during bankruptcy proceedings, where other companies bid for various assets
of the bankrupt company, which is liquidated upon the final transfer of assets to the
acquiring firm(s).

10. Management Acquisition: In a management acquisition,
also known as a management-led buyout (MBO), the executives of a company
purchase a controlling stake in another company, making it private. Often, these
former executives partner with a financier or former corporate officers in order to
help fund a transaction. Such an M&A transaction is typically financed
disproportionately with debt and the majority of shareholders must approve it.

11. Types of Mergers & Acquisition

12. Horizontal Merger: Two companies that are in direct
competition and share the same product lines and markets.

13. Vertical Merger: A customer and company or a supplier and
company. Think of a cone supplier merging with an ice cream maker.

14. Market-Extension Merger: Two companies that sell
the same products in different markets.

15. Product-extension Merger: Two companies selling different but
related products in the same market.

16. Purchase Mergers: As the name suggests, this kind of
merger occurs when one company purchases another company. The
purchase is made with cash or through the issue of some kind of debt
instrument; the sale is taxable. Acquiring companies often prefer this type
of merger because it can provide them with a tax benefit.
Acquired assets can be written-up to the actual purchase price, and the
difference between the book value and the purchase price of the assets
can depreciate annually, reducing taxes payable by the acquiring company.

17. Consolidation Mergers: With this merger, a brand
new company is formed, and both companies are bought and combined
under the new entity. The tax terms are the same as those of a purchase
merger.

18. A typical 10-step M&A deal process includes:
• Develop An Acquisition Strategy – Developing a good
acquisition strategy revolves around the acquirer having a clear idea of what
they expect to gain from making the acquisition – what their business
purpose is for acquiring the target company (e.g., expand product lines or
gain access to new markets).
• Set The M&A Search Criteria – Determining the key criteria for
identifying potential target companies (e.g., profit margins, geographic
location, or customer base).

19. • Search For Potential Acquisition Targets – The acquirer uses
their identified search criteria to look for and then evaluate potential target
companies.
• Begin Acquisition Planning – The acquirer makes contact with one or
more companies that meet its search criteria and appear to offer good value;
the purpose of initial conversations is to get more information and to see how
amenable to a merger or acquisition the target company is.

20. • Perform valuation analysis – Assuming initial contact and
conversations go well, the acquirer asks the target company to provide
substantial information (current financials, etc.) that will enable the
acquirer to further evaluate the target, both as a business on its own and
as a suitable acquisition target.
• Negotiations – After producing several valuation models of the target
company, the acquirer should have sufficient information to enable it to
construct a reasonable offer; Once the initial offer has been presented, the two
companies can negotiate terms in more detail

21. • M&A due diligence – Due diligence is an exhaustive process that
begins when the offer has been accepted; due diligence aims to confirm or
correct the acquirer’s assessment of the value of the target company by
conducting a detailed examination and analysis of every aspect of the target
company’s operations – its financial metrics, assets and liabilities, customers,
human resources, etc.
• Purchase and sale contracts – Assuming due diligence is
completed with no major problems or concerns arising, the next step
forward is executing a final contract for sale; the parties will make a final
decision on the type of purchase agreement, whether it is to be an asset
purchase or share purchase.

22. • Financing strategy for the acquisition – The acquirer will, of
course, have explored financing options for the deal earlier, but the details of
financing typically come together after the purchase and sale agreement has
been signed.
• Closing and integration of the acquisition – The acquisition deal
closes, and management teams of the target and acquirer work together on the
process of merging the two firms.

23. MERGER
• The merger means the
fusion of two or more than
two companies voluntarily
to form a new company.
• The mutual decision of the
companies going through
mergers.
• Minimum 3 Companies
are being involved.
ACQUISITION
• When one entity
purchases the business of
another entity, it is known
as Acquisition.
• Friendly or hostile decision
of acquiring and acquired
companies.
• Minimum 3 Companies
are being involved.
Differences between Merges & Acquisition

24. MERGER
• The purpose is to decrease
competition and increase
operational efficiency.
• Generally, the size of merging
companies is more or less
same.
ACQUISITION
• The purpose is for
Instantaneous growth.
• The size of the acquiring
company will be more than
the size of acquired
company.

25. Advantages of Mergers and Acquisitions
• Synergy- The synergy created by the merger of two companies is
powerful enough to enhance business performance, financial gains, and
overall shareholders value in long-term.
• Cost Efficiency- The merger results in improving the purchasing power
of the company which helps in negotiating the bulk orders and leads to cost
efficiency. The reduction in staff reduces the salary costs and increases the
margins of the company. The increase in production volume causes the per
unit production cost resulting in benefits from economies of scale.

26. Competitive Edge- The combined talent and resources of the new
company help it gain and maintain a competitive edge..
New Markets- The market reach is improved by the merger due to the
diversification or the combination of two businesses. This results in better sales
opportunities.

27. Disadvantages of Mergers and Acquisitions
• Bad for Consumers- With the merger, competition can reduce the
industry and the new company may have higher pricing power.
• Decrease in Jobs- A merger can result in job losses. An acquiring
company may shut down the under-performing segments of the company.

28. • Sometimes Dis-economies of Scale- The increased size may
lead to dis-economies of scale for the new company. It may not have the
control required for running a bigger company.

29. We at Calvella helps businesses to overcome challenges in an ever-increasing
competitive market place. Calvella’s consultants develop comprehensive
business strategies as well as several effective ways for the expansion of the
organisations of our clients. Calvella prides itself in working with an associate
team of global business advisors with exceptional industry expertise.
Innovation is at the heart of Calvella, and it is how we develop solutions for
our clients.
Our approach to innovation includes straightforward and effective solutions
across organisations from Manufacturing, Logistics, Energy, Car Hire, Travel,
Packaging, Pharma, Health Care and FMCG sectors. We have specialization in
Mergers & Acquisitions, ERP systems, CRM, Business Transformation, Business
Turnarounds, Finance Solutions, Organisational Design, Sales and Marketing.

30. Call us: +44 (0) 77991 33349
Mail us: toby.tarczy@calvella.com