Mergers and acquisitions – or M&A, from the acronym in English “merges and acquisitions” – happen when a company buys another company (acquisition) or when two or more organizations come together and form a new company (merger). This new company assumes all the assets, liabilities and rights of the organization that ceases to exist. Once the merger is complete, shareholders of the target company can be paid in cash, the buyer’s stock, or a combination of the two.
Stocks or money
There are two types of M&A transactions: via shares or via cash transactions. The main difference between the two is that, in cash transactions, the acquiring shareholders bear all the risk in relation to the expected synergy value in the acquisition premium. In share transactions, this risk is shared with the selling shareholders. More precisely, in equity transactions, synergy risk is shared in proportion to the percentage of the combined company that the acquiring and selling shareholders each own.
When it comes to an equity transaction, you can still choose between “fixed shares” or “fixed value”.
Fixed shares
In this type of negotiation, the number of shares to be issued is certain, but the value of the deal may fluctuate between the announcement of the offer and the closing date of the deal, depending on the purchaser’s share price. Both shareholders, acquirers and sellers, are affected by these changes, but changes in the share price will not affect the proportional ownership of the two sets of shareholders in the combined company.
In a fixed-stock deal, the shareholders of the acquired company are particularly vulnerable to a drop in the acquiring company’s stock price, because they have to bear some of the price risk from the moment the deal is announced. .
Types of partners
When a new partner enters the company, it is possible that he is a strategic or financial partner.
strategic partner
In a strategic partnership, the investor can be someone in the market where the company already operates, such as a customer, a competitor or a supplier. This type of partner can provide useful experience, knowledge and resources to maximize the company’s business.
Finance partner
The financial investor is, in general, an investment fund – private equity, venture capital or family office. When this type of investor allocates resources in a company, what he usually seeks is to diversify his portfolio with companies that will give a certain financial return in a period of time. In exchange, the investor keeps a portion of the invested company.
Smart money
There is also what is called “smart money” in the market. The “smart money” adds to the invested company, in addition to the financial resource, a series of other assets, such as the ecosystem of companies in the investor fund’s portfolio. This ecosystem brings to the invested company knowledge in management, strategy, finance, marketing, human resources, etc. They are intangible resources that can support the invested company in its growth process.
