CIMA F3 Syllabus D. Business valuation - Acquisitions and mergers as a method of corporate expansion - Notes
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.
Its directors will produce criteria (size, location, finances, products, expertise, management) against which targets can be judged.
Directors and/or advisors then seek out prospective targets in the business sectors it is interested in.
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.