The issue of mergers and acquisitions has a great impact on the companies that participate in that process. However, we can say that, in some sense, it has the greatest impact on the shareholders themselves. How M&A activities truly affect shareholders, read in the text below.
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When And Why Do Companies Merge Or Acquire?
This question is relevant at all times. However, today, it is perhaps even more emphasized. Namely, societies and countries in transition are often faced with M&A processes. And what is it actually about? Mergers and acquisitions represent financial transactions or investments. In practice, this type of investment occurs when one company buys a sufficient number of shares of another company – to take control or get full ownership. Whether we call it a merge or an acquisition is more a matter of semantics. If the companies are similar in size and the deal between them has a positive outcome for both parties – it is called a merger. Otherwise, we use the term acquisition. The point is the same as with any investment. Therefore, it is desirable for both parties that the value of the company and its shares increase after the investment.
Reasons For Mergers And Acquisitions
There are many reasons why companies decide on mergers and acquisitions. One of the basic ideas is generating external growth – that is, increasing the size of the company and its market power. Also, we must not ignore the increase in cash flow after mergers and acquisitions. There are also other reasons why companies decide on mergers and acquisitions procedures. Some of the most common reasons for carrying out M&A procedures are:
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Elimination of competition
By starting an M&A process, companies achieve a monopoly or increase the market share. Such a development in the situation may allow prices to rise with the same turnover – and that can increase the cash flow.
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Securing the source of goods or important raw materials
In many cases, it happens that a company in the M&A process takes over the company of an important supplier. That is sometimes a very significant strategic move – especially in cases when there is a shortage of goods, raw materials, etc. – or when there is a possibility that the supply chain may be interrupted.
Although mergers and acquisition processes are considered lucrative, especially for investors – they also carry certain risks. First, we mean the risk of losing the investment due to insufficiently good market response. That actually happens very often due to insufficiently good assessment. To make a realistic and valid assessment, companies require serious and thorough preparation. This prep-procedure does not only involve invested finances – but also an estimation of the future aspects of the company’s business. That is important not only for investors but also for employees and shareholders of the company. In the entire chain of these M&A activities, sometimes a significant part of the shareholders does not always have the leading role in making decisions. Often, making such decisions is left to the management and owners – however, they all carry the risk of possible consequences. Here we come to the question of the impact of M&A activities on the shareholders.
This question certainly concerns all those who own shares in a company. The future of your shares mostly depends on the scale of the exchange of shares in the M&A procedure. Every shareholder can benefit if the merger and acquisition process turns out to be a good move. Here again, we come to the question of a good assessment, for which it is necessary to engage experts in this field or contact an M&A association. Namely, the entire procedure carries with it the potential possibility of earning, but also great risks. Company owners and investors who play it safe will not engage in this procedure without thorough analysis and advice and the help of a mergers and acquisitions expert. Of course, anything other than that would be pure gambling. After all, if you want to understand how important merger consulting is for all participants in this financial procedure, it is enough to look at specialized sites like https://imaa-institute.org/.
Speaking of shares, everything depends on a good assessment and a well-executed merger and acquisition procedure. Namely, when the entire procedure is carried out professionally and with the support of experts in this field – a rise in shares is expected. Although shareholders often fear the merger and acquisition process – in most cases, it is completely unjustified. We see that in numerous examples of synergy between large and well-known companies – where shareholders only profited in the end. Still, companies operating in countries in transition are often insufficiently familiar with this procedure – which sometimes causes skepticism. However, with adequate information and education in this area, as well as good M&A training – the situation in these countries is changing drastically for the better. During the successful synergy of two economic entities, most often, as a consequence, we have a long-term increase in share prices.
A Unified Strategy Is What Leads To A Successful M&A Process
The conducted research has proven that some companies have shown certain deviations regarding the compatibility of the management’s strategies and policies with the shareholders. That was usually happening in the pre-acquisition phase. Therefore, mergers and acquisitions associations suggest companies should pay more attention to preventing conflicting interests of strategies – as well as focusing on achieving the best possible compatibility in the relationship between management and shareholders. However, in most cases, it turned out that even the management is not prone to risks, not only of a financial nature but also liability risks. Therefore, in most companies in these situations, a collective spirit is nurtured, where the management is more decisive, open – and ready to react in crises. Remember, the mutual goal is to achieve the long-term success of the M&A process.