Definition:
Mergers and Acquisitions have become increasingly popular with the increasing globalization. A merger is when two firms, of almost the same size and level, join operations and become on single firm carrying out the business. Both the companies’ stocks are given up and new stock is issued. The words merger and acquisitions have been used interchangeably, when in reality, the meanings are actually different. An acquisition is when one buys another firm and therefore the firm being bought ceases to exist and has been absorbed by the buyer. The buyer firm’s stock is now the stock of the entire company. An acquisition usually means that the target company was unwilling to be purchased and hence ‘merge’ so the buyer company just too over and acquired the whole target company.
New Trends:
In the recent years in the Mergers & Acquisitions market, the deal flow has been strong. Valuations in Europe rose because the interest rates were low and in the US the interest rates were rising. In 2018, U.S had healthy M&A activity because of a record-breaking stock market and tax reform that had been adopted in 2017. Tax reforms have proven to be in a favor of M&A activity, so far.
In Europe, there was a significant decline in M&A activities in 2018 but M&A activity reached USD$989.2 billion in 2018, its highest level since the financial crisis. Despite the political uncertainty in Europe, M&A continued to prosper, especially in the first half of 2018, with cross-border deals in Europe being particularly prominent. This flow of money in Europe was because of the Brexit negotiations and a strong US dollar, which brought in foreign investment and many US businesses were interested in acquiring European assets.
On the other hand in Asia, most M&A had been driven by China and Japan but in the recent years India has changed the trend. M&A deals in Asia reached the second highest in 2018 due to this reason. India’s M&A activity reached an all-time high of USD$99.9 billion in 2018. During 2019, U.S’ Walmart acquired Flipkart, India’s largest e-retailer, for USD$16 billion.
Technology continues to be a deciding factor in shaping and reshaping industries around the world. New companies keep entering the market and gauging market share and continue to influence the M&A deals happening. Companies with not much technological advancement have been seeking to acquire companies with strong technology hold and have contributed significantly to the M&A activity in 2018.
The tax law changes have generally been fortunate for corporations, further increasing liquidity. Liquidity has only been increasing the demands of acquisitions despite high interest rates. People have become aggressive and companies are looking to grow through acquisitions. Demographics have also been favoring M&A. Most owners of corporations are baby boomers and they do not see themselves working for more than 5-10 years. They are looking for change in ownership and have been interested in the acquisition deals. M&A activity has also increased across different industries as companies feel like they need to have different business services under their belt, in order to succeed and have healthy competition.