M&A transactions are the acquisition by a different company of a business, usually in exchange for cash or shares. The goal is to gain an unabated competitive advantage in the marketplace. It might not be the ideal solution for all goals, but those who comprehend its benefits and apply it properly can experience significant growth.
One of the reasons for M&A is that it enables companies to gain economies of scope, the phenomenon whereby “one plus one is greater than two.” For instance, when Facebook acquired WhatsApp and Instagram, it tapped into the growing demand of a new customer base without having to spend massively in the development of these services. It also gained market share and scale, which gives it more bargaining power suppliers or customers.
A common motivation is the desire to build an empire. Managers are motivated to purchase companies that can increase the share of their m&a transactions market or cut down on competition. This strategy could be extremely successful, if done within the context of clearly-defined objectives and backed by accurate financial predictions.
M&A can also help a business be successful and survive in turbulent markets. For example, many banks joined to shield themselves from the Great Recession of 2008-2011, because credit quality was declining. It is also used to diversify revenue by buying the business of a different region or industry. Retailers, for instance typically acquire companies in technology or ecommerce to gain access to new markets and increase revenues. A common error is to see M&A as a strictly financial tool, with no regard to the strategic value that it creates.