Mergers and Acquisitions


Regardless of what form a business takes—be it a sole proprietorship, partnership, or a corporation—the chances are reasonably good that its form will evolve over time. Companies of all sizes and types achieve a variety of objectives by merging, dividing, and restructuring. The terms most often used to describe all of this activity are mergers, acquisitions, and leveraged buyouts. The difference between a merger and an acquisition is fairly technical, having to do with how the financial transaction is structured. Basically, in a merger, two or more companies combine to create a new company by pooling their interests. In an acquisition, one company buys another company (or parts of another company) and emerges as the controlling corporation. The flip side of an acquisition is a divestiture, in which one company sells a portion of its business to another company. In leveraged buyouts one or more individuals purchase the company (or a division of the company) with borrowed funds, using the assets of the company they’re buying to secure (or guarantee repayment of) the loan. The loans are then repaid out of the company’s earnings, through the sale of assets, or with stock. Leveraged buyouts do not always work.

Mergers and acquisitions represent relatively radical ways in which companies are combined. On a more modest scale, businesses often join forces in alliances to accomplish specific purpose. In a joint venture, two or more companies combine forces to work on a project. The joint venture may be dissolved fairly quickly if the project is limited in scope, or it may endure for many years.

A consortium is similar to a joint venture, but it involves the combined efforts of several companies. Cooperatives also serve as a vehicle for joint activities. In a cooperative, a group of people or small companies with common goals work collectively to obtain greater bargaining power and to benefit from economies of scale. Like large companies, these cooperatives can buy and sell things in quantity; but instead of distributing a share of the profits to stockholders, cooperatives divide all profits among their members.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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Corporate Restructuring


Corporate restructuring encompasses a broad range of activities and include acquisition and divestiture of lines of business and assets, acquiring controlling shares in other companies, alteration in capital structure through a variety of financial engineering initiatives, and also effecting internal streamlining and business process reengineering to improve efficiency and effectiveness of the firm. Corporate restructuring can thus lead to changes along one or more of the three directions, vis-à-vis, i) assets and portfolio, ii) capital structure, and iii) organization and management. Assets and portfolio structure can get significantly altered when a firm undertakes a series of acquisitions and divestitures to bring more focus to its lines of business or widen its activities to enter new fields. Capital structure can change due to corporate restructuring caused by infusion of large debt, change in equity due to either expansion of capital base or buyback of equity or composition of owners (e.g., participation of MNCs, and FIs in the equity of the firm). Organizational restructuring is also a part of the overall corporate restructuring and is designed to improve the overall efficiency and effectiveness of the organization through changes in structure, systems and processes, people and culture.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight