Mergers acquisitions tools

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Read the latest articles and see your reports. Popular Now. January 12, Wynnchurch Sells Controlling Interest in Rosboro. BlackHawk Industrial Acquires Pinnacle. Reverse mergers occur when a private company that has strong prospects and is eager to acquire financing buys a publicly listed shell company with no legitimate business operations and limited assets. The private company reverses merges into the public company , and together they become an entirely new public corporation with tradable shares.

The seller will obviously value the company at the highest price possible, while the buyer will attempt to buy it for the lowest price possible.

Fortunately, a company can be objectively valued by studying comparable companies in an industry, and by relying on the following metrics:. Admittedly, DCF is tricky to get right, but few tools can rival this valuation method. In a few cases, acquisitions are based on the cost of replacing the target company. For simplicity's sake, suppose the value of a company is simply the sum of all its equipment and staffing costs. The acquiring company can literally order the target to sell at that price, or it will create a competitor for the same cost.

Naturally, it takes a long time to assemble good management, acquire property, and purchase the right equipment. This method of establishing a price certainly wouldn't make much sense in a service industry wherein the key assets people and ideas are hard to value and develop.

In general, "acquisition" describes a transaction, wherein one firm absorbs another firm via a takeover. The term "merger" is used when the purchasing and target companies mutually combine to form a completely new entity.

Because each combination is a unique case with its own peculiarities and reasons for undertaking the transaction, use of these terms tends to overlap. Two of the key drivers of capitalism are competition and growth. When a company faces competition, it must both cut costs and innovate at the same time. One solution is to acquire competitors so that they are no longer a threat. Companies may also look for synergies. By combining business activities, overall performance efficiency tends to increase, and across-the-board costs tend to drop as each company leverages off of the other company's strengths.

Friendly acquisitions are most common and occur when the target firm agrees to be acquired; its board of directors and shareholders approve of the acquisition, and these combinations often work for the mutual benefit of the acquiring and target companies. Unfriendly acquisitions, commonly known as hostile takeovers, occur when the target company does not consent to the acquisition.

Hostile acquisitions don't have the same agreement from the target firm, and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest, which forces the acquisition. Generally speaking, in the days leading up to a merger or acquisition, shareholders of the acquiring firm will see a temporary drop in share value. At the same time, shares in the target firm typically experience a rise in value.

This is often due to the fact that the acquiring firm will need to spend capital to acquire the target firm at a premium to the pre-takeover share prices.

After a merger or acquisition officially takes effect, the stock price usually exceeds the value of each underlying company during its pre-takeover stage. In the absence of unfavorable economic conditions , shareholders of the merged company usually experience favorable long-term performance and dividends. Note that the shareholders of both companies may experience a dilution of voting power due to the increased number of shares released during the merger process.

This phenomenon is prominent in stock-for-stock mergers , when the new company offers its shares in exchange for shares in the target company, at an agreed-upon conversion rate. Shareholders of the acquiring company experience a marginal loss of voting power, while shareholders of a smaller target company may see a significant erosion of their voting powers in the relatively larger pool of stakeholders.

Horizontal integration and vertical integration are competitive strategies that companies use to consolidate their position among competitors. Horizontal integration is the acquisition of a related business. A company that opts for horizontal integration will take over another company that operates at the same level of the value chain in an industry—for instance when Marriott International, Inc.

Vertical integration refers to the process of acquiring business operations within the same production vertical. A company that opts for vertical integration takes complete control over one or more stages in the production or distribution of a product. Apple, for example, acquired AuthenTec, which makes the touch ID fingerprint sensor technology that goes into its iPhones. Marriott International. Securities and Exchange Commission.

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