Mergers and acquisitions or M&A refers to the aspect of corporate finance strategy and management dealing with the merging and acquiring of different companies as well as other assets. Usually mergers occur in a friendly setting where executives from the respective companies participate in a due diligence process to ensure a successful combination of all parts.
On other occasions, acquisitions can happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the poison pill.
Mergers and acquisitions (M&As) have been and will continue to be major factors in both the U.S. domestic and international business landscapes. Since 1983, there have been over 2500 M&As annually in the United States alone.
The number of M&As among European firms has risen from 117 in 1983 to 440 in 1988. Moreover, the number of M&As among firms from different countries has risen dramatically. For instance, American firms were involved as acquirers and acquired firms in just over 400 transactions in 1986 and about 600 in 1988. This in large part is due to the rising number of acquisitions of U.S. firms by non-U.S. firms. Even the Japanese have become more active in M&As. In 1988 the Japanese engineered 315 M&As compared to only 44 in 1984. (Bowditch, 1989). Furthermore, the continuing evolution of the European Economic Community, privatization efforts in Eastern Europe and other parts of the world, and consolidation of many U.S. domestic industries such as airlines, banking and pharmaceuticals create even further opportunities for future acquisitions. (Napier, 2000)
Three major factors are critical...