Merger and Acquisition (M&A)

M&A covers a range of deals. In a merger, two companies combine to form a single entity. In an acquisition, one company buys another. M&A also includes the purchase of divisions or assets, joint ventures and divestitures.

Companies pursue M&A for many reasons, including growth, gaining market share, entering new markets, acquiring technology or talent, achieving cost savings through synergies, and diversifying their businesses.

For example, a large pharmaceutical company might acquire a smaller biotechnology company to gain access to a promising new drug, rather than developing one itself.

M&A transactions involve several stages, including identifying targets, valuation, negotiation, due diligence, financing, regulatory approvals and integration after the deal is completed. Investment banks, lawyers and accountants advise on most large transactions.

M&A activity tends to rise when economies are strong, financing is cheap and share prices are high. Studies suggest that many acquisitions fail to create value for the buyer's shareholders, often because the buyer overpays, expected synergies do not materialise or integration proves difficult. Large deals may also face scrutiny from competition authorities.