The merger and acquisition market (M&A) is a major part of many public companies growth strategies. Large public companies with surplus cash often seek opportunities for acquisitions to gain organic expansion. M&A is usually a combination of two companies from the same industry at similar levels in the supply chain.

In general, a company can purchase another for cash, stock or debt. The investment bank that is involved in the sale will sometimes provide financing to buyer’s firm too (known by the term “strategy financing).

M&A begins with an assessment of the target. This includes financial reports along with business plans, management plans, and other relevant information. This process, called valuation, is performed by the acquirer’s firm or consultants. Typically, the company performing valuation should consider more than just financial data, including culture fit and other factors that can affect the success of the deal.

The most common reason for a company to create a merger is to boost growth. In addition, increasing the size of a company gives it economies of scale, which decreases operating costs https://dataroomdev.blog/ and improves bargaining power with suppliers of raw materials, technologies or services. Another motive is diversification which improves the ability of a business to weather cyclical downturns or provide more stable revenue. Lastly, some companies acquire competitors to solidify their position on the market and eliminate future threats. This is known as defensive M&A.