Debt Financing for Mergers and Acquisitions

Mergers and acquisitions, also known as M&A, is the combining of two companies through some form of financial transaction, such as mergers, acquisitions, tender offers and consolidations. In a merger, two or more companies merge their operations and become one entity. On the other hand, in an acquisition, one company acquires another company, and the acquired company becomes a subsidiary of the acquiring company.

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“A merger is when two or more companies combine into one single company.”

A merger is an agreement undertaken to unite two prevailing organizations into one new entity. There are numerous reasons why a company chooses to unite with another company. The primary reasons for mergers include expanding the company’s reach, gaining market share, or expanding into new segments. The company conducts these activities to please the shareholders.

What is motive of mergers?

Mergers are most commonly done to gain market share, reduce operational costs, expand to new territories, unite common products, grow revenues, and increase profits all of which should benefit the firms' shareholders. After a merger, shares of the new company are distributed to existing shareholders of both original businesses.

Example of Mergers

After Reliance Jio entered in 2016 with free data & cheap tariffs, the telecom industry faced a price war. Vodafone and Idea were losing market share and profits they both were struggling then they decide to merged with Idea Cellular and Vodaphone form Vodafone Idea Ltd.

“An acquisition is which one company purchases and takes control of another company by buying most or all of its shares or assets”

Acquisition is a financial transaction that occurs when one business acquires the majority or all of its target’s shares. The goal of an acquisition is to gain control of the target’s operations, including its assets, production facilities, resources, market share, customer base, and other elements.

What is motive of mergers?

The main motive of acquisitions is to achieve faster growth, expand market share, gain synergies, access new technologies or talent, diversify business risk and strengthen competitive position.

Example of Acquisitions

In 2008 Tata Motors, an Indian automaker wanted to expand its product portfolio and diversify its market base. It acquired the two iconic British brands Jaguar and Land Rover from the American automaker Ford Motor Corporation.