Mergers and Acquisitions - M&A
Categories: Banking
The buying and selling of companies.
A merger of equals happens when companies simply meld together their finances...income statement and balance sheet, etc...and they combine. Hard to figure out then who runs the whole show. But when it goes well, it can go well. When it doesn't, it gets to be Cendant-HFS, or it gets to be AOL-Time Warner, thus far the two reigning champions in terms of value destruction in mergers of equals. See: Pooling.
The more common form of putting companies together comes in the form of an acquisition. One company just buys another. Simple, right? Yeah, not so much. How do they buy? All cash? What if they need a loan to come up with that cash? Or what if the acquirer is using its own stock to acquire the target? What if it's like...half cash, half stock? Will both boards end up happy-ish? What if one division, after the merger, would be so powerful that it'd bring in regulators to look hard at monopolistic practices? See: Hart-Scott-Rodino Antitrust Improvements Act Of 1976.
Investment banking pros offer services that help companies buy and sell used companies. All kinds of complexities exist, so there is, in fact, room for a well-dressed, commission-smiling helper in the process.