Corporate finance
Mergers and acquisitions consulting
Mergers and Acquisition Accountants
If you’re looking to buy a business or complete a merger in order to improve your competitive position in the marketplace, our Corporate Finance team can help. Our consulting team can assist in evaluating and integrating an acquired firm, ensuring a smooth transition and maximising the benefits of the acquisition. Thorough due diligence and post-merger integration are crucial for value creation in the M&A process.
Private companies can quickly become publicly listed by acquiring a publicly listed shell company through reverse mergers.
Introduction to Mergers and Acquisitions
Mergers and acquisitions (M&A) refer to the strategic process where two or more companies combine to form a new entity, aiming to create a more competitive and profitable business. One company can acquire another by purchasing its outstanding stock or absorbing its assets. This can be achieved through various means, including mergers, acquisitions, and consolidations.
The target company’s board plays a crucial role in the M&A process, as they must approve the deal and ensure it aligns with the best interests of the company’s shareholders. Additionally, M&A transactions can offer significant tax benefits, such as leveraging the tax losses of the acquired company to reduce overall tax liability.
A share purchase agreement is typically used to outline the terms of the deal, including the purchase price and any conditions that must be met. Intellectual property is often a key consideration in M&A transactions, as the acquiring company will want to ensure access to the target company’s valuable assets. Target companies are those that combine to create a new entity, playing a pivotal role in the transaction process.
Types of Mergers and Acquisitions
Mergers and acquisitions can be classified into several types, each serving different strategic purposes:
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Horizontal Mergers: When two companies in the same industry combine to increase market share and reduce competition. A horizontal merger can lead to increased market power, allowing the merged entity to influence prices more effectively.
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Vertical Mergers: When a company acquires a supplier or customer to control its supply chain and reduce costs. A vertical merger aims to strengthen the company’s position within the industry by moving along the supply chain.
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Conglomerate Mergers: When a company acquires another company in a different industry to diversify its business and reduce risk.
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Market Extension Mergers: When a company acquires another company in a new market to expand its customer base and increase revenue.
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Product Extension Mergers: When a company acquires another company that offers complementary products to increase its product offerings and revenue.
These different types of mergers and acquisitions allow companies to strategically position themselves in the market, enhance their competitive edge, and achieve specific business objectives. Different types of mergers can enhance market power, enabling companies to negotiate better with suppliers and control prices more effectively.
Valuation Methods
Valuation is a critical step in the M&A process, as it determines the price that the acquiring company will pay for the target company. Several valuation methods can be used, including:
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Discounted Cash Flow (DCF) Method: This method estimates the present value of the target company’s future cash flows. Changes in working capital are integral to forecasting these cash flows, which are subsequently discounted to determine present value.
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Comparable Company Analysis (CCA) Method: This method involves comparing the target company to similar companies in the same industry.
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Asset-Based Valuation Method: This method involves valuing the target company’s assets, such as its property, equipment, and intellectual property.
Achieving the highest price for the target company is crucial for the sellers, as it ensures they receive maximum value from the transaction.
The goal of valuation is to determine the maximum value of the target company and ensure that the acquiring company pays a fair price. Accurate valuation is essential for a successful M&A transaction, as it helps in negotiating a deal that reflects the true worth of the company’s financial metrics and overall value.
Financing Mergers and Acquisitions
Mergers and acquisitions can be financed through various means, including cash, debt, and equity. A cash offer refers to a transaction where the buyer pays cash to acquire shares from the target company, highlighting the straightforward nature of this type of financial exchange. The acquiring company may use its own cash reserves or borrow money from a bank or other lender to finance the deal.
Additionally, tax liability can be managed through M&A transactions, as one company can utilise another’s tax loss carryforwards to reduce their own tax liability. Alternatively, the acquiring company may issue new shares of stock to raise the necessary funds. Private equity firms may also be involved in M&A transactions, providing financing and strategic guidance to the acquiring company. The choice of financing method will depend on the specific circumstances of the deal and the goals of the buyer, who seeks to acquire the target company at the lowest possible price.
Mergers and Acquisitions Specialists
Mergers and acquisitions can be complicated and time consuming, the support and assistance of an experienced professional is a worthwhile investment that could save you money in the long-run. If a deal is not well researched and skilfully negotiated it could be a costly mistake. M&A specialists help in identifying and evaluating potential acquired firms, ensuring that the acquisition aligns with strategic goals.
The acquiring firm plays a crucial role in the M&A process, often needing to secure a substantial share of the target company to enforce an acquisition, which can lead to stock price fluctuations for both the acquiring and target firms.
Specialists also address integration challenges during the post-merger phase, ensuring that due diligence is synchronised with integration efforts to enhance communication and streamline processes for better outcomes.
Our mergers and acquisitions specialists can help you to:
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Identify potential targets for M&A
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Screen targets for suitability
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Prepare a negotiating strategy
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Raise the necessary capital
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Develop an integration plan
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Optimise the tax and financial position of the combined enterprise.
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Maintain the solvency of the target business after acquisition, emphasising the benefits of merging with the target business.
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Enhance brand value through strategic acquisitions, strengthening reputation and customer loyalty.
At other times, you may decide to improve your profitability by making a disposal or selling your business. Our Corporate Finance team can help with valuing the assets, finding suitable purchasers and negotiating the sale.