What are Mergers and Acquisitions? A Simple Guide

What are mergers and acquisitions? In essence, this is a process of combining two companies into one. The goal is to achieve synergy where a whole new company is created, greater than the sum of its parts.

A business may feel that it is at the end of its growth capability, and that they have to expand to achieve its ultimate goals. In many circumstances, merging with or acquiring another company may be the perfect solution.

This process falls under the broad umbrella of M&A. It can be beneficial for all parties – it can help buyers achieve their strategic goals and sellers seize the opportunity to either cash out, or share the risk and reward of forming a new business.

What are Mergers and Acquisitions?

Although the two terms mergers and acquisitions are often used interchangeably, these two things are actually very different on a fundamental level. 

In a merger, two smaller companies combine their businesses and operations to form a new individual entity.

However, acquisition refers to the process in which a larger company absorbs a smaller company into its organisational structure. No new entity is formed: instead, the larger company acquires the resources and business processes of the smaller one in order to grow and improve its own business.

M&A deals can range from friendly to hostile, depending on the situation and the parties involved. A successful M&A is more likely if the goals of both companies are aligned.

How to Work in M&A?

Mergers and acquisitions is a unique field that requires a particular set of skills and qualifications.

Some of the key skills needed are:

• Rapid problem-solving skills – M&A is a dynamic area where things can change quickly, so it’s essential to be able to face new challenges, adapt to evolving situations, and mitigate its risks and their impacts.
• Strong communication and interpersonal skills – When organisations form via M&A, there can be a wide communication gap as two distinct cultures come together. Excellent interpersonal skills can help bridge the gap between diverse groups of staff from different professional backgrounds, geographies, and working environments.
• Financial management – Finance is a big part of M&A deals, so a background in finance helps experts better evaluate the companies’ histories, predict financial performance, and monitor the scope and progress of the M&A process.

EDHEC’s Online Master of Science (MSc) in Corporate Finance is an excellent way to develop all these skills and more, while earning a valuable qualification from a recognised institution.

Why do Organisations Need M&A Experts?

M&A professionals are specialists who work purely on mergers and acquisitions. Rather than being a member of one of the parties involved in the merger or acquisition, they are external parties, usually employed by a large investment bank or financial institution. In addition, they may be part of an industry-specific team, such as manufacturing, IT, engineering, or financial services.

The duties and responsibilities of an M&A analyst can include:

• Identifying and researching target companies
• Laying the groundwork for potential deals, analysing data around both companies, and identifying key risks and benefits
• Conducting due diligence around the M&A process
• Evaluating and appraising the M&A deal
• Seeing the deal through to completion

An M&A analyst is a specialised professional whose role is quite different to other financial professionals. 

While a CFO or financial executive is in charge of promoting their company’s financial interests, an M&A professional evaluates potential deals to ensure they are built on reasonable assumptions, will create shareholder value, and the benefits outweigh the risks. They act in the best interests of all parties, and help complete a deal that will benefit all.

External M&A experts are indispensable for any company involved in a merger or acquisition. They can help right from the start of the process, from identifying, screening, and connecting a company with potential targets, to ensuring that the deal goes smoothly and is finalised. In this way, businesses can make full use of the advantages of M&A, helping them face new challenges, grow, or overcome financial crises to thrive as part of a new organisation.