Mergers and acquisitionsMergers and acquisitions (commonly abbreviated to M&A) ... More (commonly abbreviated to M&A) is a term which can refer to all types of corporate restructuring.
What is the difference between a merger and an acquisition?
If two or more companies combine to form a new single business, this is known as a merger. Mergers are usually voluntary and the existing of both companies will retain an interestWhat is interest? In finance and trading, interest is a fe... More in the new business.
If one company purchases another company (and no new company is formed), this is known as an acquisition. Unlike in a merger, the acquiring company will purchase the majority of the other company’s . An acquisition can also be referred to as a “takeover”.
Why do mergers and acquisitions occur?
The reasons behind mergers and acquisitions vary considerably but can include:
- Increased revenue or marketWhat are value stocks? A value company is a company that app... More share
- Vertical or horizontal integration
- Diversification
- Improved economies of scale
- Improved overall efficiency
- Taxation reasons
Why are mergers and acquisitions of interest to investors?
Mergers and acquisitions can impact the share priceWhat are value stocks? A value company is a company that app... More of the companies involved and so are of particular interest to .
If, for example, a company is about to merge with or acquire another company, the share priceWhat is price? The price is the measure of the value of good... More of both could go up if the move is seen as mutually beneficial. However, the share price of an acquiring company can temporarily fall because of the costs involved in making such a big purchase.
A company that is being bought will usually see their share price increase. This is in anticipation of a premium having to be paid for the stock to ensure that shareholders accept a bid.
To learn more about stocks trading, including stock picking, fundamental analysisFundamental analysis involves studying the economics of a co... More and building a portfolioWhat is a trading portfolio? When an investor holds a grou... More, read through the lessons in our dedicated learning modules:
