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The acronym M&A stands for mergers & acquisitions, which involves the sale and purchase of, as well as the corporate financing of, companies and organizations. M&A transactions range from those that are very large to those that are rather small. A larger M&As might include multi-million dollar companies merging to form even larger corporations, while smaller M&As might involve the selling or liquidating of a company's assets to investors, including private equity firms or competitors.
The acronym M&A suggests that mergers and acquisitions are one and the same thing, but they are not. Mergers usually involve two companies that decide to consolidate operations so as to operate as one company. If the new company is public, new stocks will be issued. On the other hand, acquisitions typically involve one larger company purchasing a smaller company. This often includes the absorption of the acquired company's operations into its own or liquidating the acquired company's assets.
While the public often considers merger and acquisition deals underhanded or threatening to the jobs of employees, a M&A is often driven by a company's need to refinance or restructure in order to increase shareholder value and create a competitive advantage. In other words, when a company is acquired, the buyer often seeks to become more competitive and cost-efficient while also acquiring greater market share.
Additionally, it is important to note that mergers and acquisitions do not happen overnight; it is not like a customer going into a store and buying a product off the shelves. The owner selling his or her company needs to consider the company's interests and define what he or she wants to gain from an impending merger or acquisition. For example, just because an owner sells his shares, does not mean that he wants to retire or stop working for the company. In fact, the acquiring company often wants a leader from the acquired company to help work through the transition.
On the other hand, sometimes a company acts proactively when it wants to acquire more brands, expand its operations, or get rid of its competition. This last option is sometimes referred to as a hostile bid or takeover. In this case, the potential buyer will approach a company that has something the buying company needs, including brand-name products. For example, Yahoo® has been approached multiple times — first by Microsoft® and later by Google®.
The M&A process can be long, which means that there is plenty of time for things to go wrong. The seller and buyer may not agree on a selling price, or the economy may be too volatile and the buyer may back out. In this way, M&A activity can be cyclical — full of activity one year and quiet the next. While mergers and acquisitions can fall through, they will continue to take place as companies search for more ways to become cost-effective and competitive in today's economy.