The Future of Online Merger and Acquisition Transactions

Posted by Security Vault

M&A plays a major role in corporate life. Online M&A transactions have become more frequent. When a merger occurs two companies will either merge to create one entity (merger) or they will purchase the other company from its shareholders and take over its operations (acquisition). Both types of M&As are associated with significant financial implications. Companies participate in M&A to reap the benefits of synergies and economies of scale, which allow them to save money on unnecessary resources such as branch and regional offices, manufacturing plants, research projects, and so on. The savings from these cost reductions are passed directly to the bottom line and are referred to as an accretive acquisition.

Other motives for M&A are strategic and competitive including gaining access to the latest technology or capability or expanding into new markets. Cisco recently acquired Purple, a direct-to consumer mattress retailer for $1.1 billion. These deals are typically more appealing to investors than an equity deal, which entails the investor purchasing shares of the acquiring company and owning them for a long period of time.

The coronavirus pandemic is in the process of being cured, M&A activity may be dampened somewhat in the near term. Buyers must weigh the benefits and risk of a transaction against the costs and risks, and their internal justifications will have to be more robust. It will also take longer to get third-party consents, such as from customers and intellectual property licensing organizations. M&A valuations are more difficult to establish due to the coronavirus outbreak and the saying “getting everyone together in a room” isn’t feasible right now.

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