Mergers and Acquisitions is an age-old process that has existed since long before the advent of the Internet. However, the modern method of entering into this transaction differs from what it used to be. Some issues have become a higher priority, and some have become less important. In the last year, the number of M&A deals has exceeded all records, and news about it has begun to fill more and more headlines. To stay on top of the information, and to increase your awareness of the issue, below we’ll highlight four surprising facts about modern M&A.
What are mergers and acquisitions?
A merger and acquisition is a complex business process that involves combining two companies into one. The main goal of this process is to achieve synergies whereby the newly created company will achieve greater goals than the two companies separately. In addition, these deals aim for mutual benefit that will increase sales, efficiency, and opportunities. This is a risky transaction in which entrepreneurs must consider each other’s financial, legal, technological, marketing, and human resources for the integration to be truly successful. When an entrepreneur decides to do an M&A deal, he may think he knows everything he needs to know, but it’s never too late to discover something new. Below we highlight four surprising facts about the modern M&A process.
The influence of shareholders on a deal depends on whose side they’re on
Often, shareholders of target companies are asked to participate in a vote that decides whether to accept or reject the offer of the acquiring company. At the same time, shareholders of the acquiring company can only vote in the M&A process if the acquiring company issues shares to finance the acquisition, and those shares are greater than or equal to the level of 20 percent of the company’s common stock, which meets the rules of the New York Stock Exchange. It also depends on the type of transaction. For example, if you are doing a merger – that is, when two companies merge into one with equal rights, the shareholders of both companies must vote to approve the transaction.
The transaction affects stock prices in unpredictable ways
In acquiring a company, the stock prices of both companies (or more, depending on the participants) will rise or fall – it all depends on how the market views the transaction. For example, let’s say the stock of the company being sold rises higher and eventually exceeds the offer price. In that case, the market would feel that the offer price should increase, either from the same buyer or other potential buyers. But if the share price does not reach the offer price, likely, the deal will not be approved.
Healthcare was the most active industry in mergers and acquisitions today
In the healthcare industry, M&A activity has been significantly elevated of late. This is because companies have had additional stimulus from the Affordable Care Act and the industry’s reaction to the Act. Other leading areas involved in these transactions are real estate and technology. However, this list can change frequently depending on changes in federal law and regulations.
M&A deals benefit sellers more than buyers
Many myths and misconceptions are swirling around the topic of mergers and acquisitions. For example, people think that acquiring a subsidiary translates into great success for the buyer and a significant increase in profits when the expectations of company executives and shareholders regarding the transaction are often not met. Failure during mergers and acquisitions occurs 70% to 90% of the time. Nonetheless, when deals are successful, they increase profits and shareholder value, so it’s worth the risk.