Traderelic

Although the terms are often used interchangeably and are very similar in nature, company “mergers” and “acquisitions” are slightly different. The phrase “mergers and acquisitions” actually has an official abbreviation attached to it, M&A. You will often hear both terms referred to as consolidations. The main goal for both is usually to expand and increase business.

A merger is when two companies, often of relatively the same size, integrate and jointly agree to move forward as a single new company rather than remain separately owned and operated. Mergers do not occur nearly as often as acquisitions.

An acquisition (also known as a takeover or buyout) is the buying of a company and taking control of it. An acquisition may be friendly or hostile, as well as public or private.

We frequently hear the terms mergers and acquisitions when it comes to the corporate finance industry. This activity refers to businesses in the corporate finance industry getting involved in the buying, selling or combining of multiple companies. This is typically done to finance a financial company and to aid in a quick growth, avoiding the need to create a whole new business entity. Banks are especially known to engage in this activity, and there is a long history of it throughout time. It is not uncommon to hear bank names changing frequently due to mergers or acquisitions. It happens often enough that it is sometimes difficult to keep up with.

Banks are usually acquired by other financial institutions, but they may also be acquired by individuals or groups with the intention of controlling it and avoiding having to start a brand new one. There are many examples of major mergers and acquisitions which have taken place in the UK in the past. One such example is in 2004 when Abbey National, the sixth largest bank in the UK, agreed to a takeover bid of $15.5 billion from Banco Santander, Spain’s largest bank.

Like anything else, there are pros and cons to mergers and acquisitions in the corporate finance world. A major pro is the possible creation of a very large profit. For a bank in financial turmoil, merging with another may be the only way to save it. A major con is a possible negative public reaction to it if it is a hostile takeover and resistance is received from the targeted bank. There is also the newly-added responsibility of additional liabilities and problems.

By: Barry Trevor

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