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One plus one makes three: this equation is the special alchemy of a merger or an acquisition.
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.
The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A.
A Merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This is referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place.
Mergers can be classified based on various criteria like the types of the firms involved in the deal or the change in the Earnings per Share of the companies involved in the deal or the way in which the deal is financed. Based on these criteria the mergers are classified into Horizontal mergers, Vertical mergers, Conglomerate, Market Extension merger, Product Extension merger, Accretive mergers, Dilutive mergers, Purchase mergers and Consolidation mergers.
On the other hand, when one company takes over another and clearly establishes itself as the new owner, th ...