Acquisitions and mergers as a method of corporate expansion

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Merger or acquisition

A merger

is the combining of two or more companies

Generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

An acquisition

normally involves a larger company (a predator) acquiring a smaller company (a target).

A demerger

A demerger involves splitting a company into two separate companies which would then operate independently of each other. 

The equity holders in the company would continue to have an equity stake in both companies.

An alternative approach

is that a company may simply purchase the assets of another company rather than acquiring its business, goodwill, etc.

Identifying possible acquisition targets

Suppose a company decides to expand.

  1. Its directors will produce criteria (size, location, finances, products, expertise, management) against which targets can be judged.

  2. Directors and/or advisors then seek out prospective targets in the business sectors it is interested in.

  3. The team then examines each prospect closely from both a commercial and financial viewpoint against criteria.

    In general businesses are acquired as going concerns rather than the purchase of specific assets.

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