Overview of Mergers & Acquisition

Overview of Mergers & Acquisition

The mergers & acquisition market comprises deals ranging in valuation from $1 million to $100 billion. The mergers & acquisition market is a general term that describes companies or firms engaged in the business of effecting ownership changes in the corporate world. There are a multitude of participants in this industry including company’s seeking acquisitions, companies being targeted and specialist advisory firms who get involved with business valuation or finance arrangement. As a complex and ever changing ecosystem, the merger and acquisitions market is dependent on many factors including general economic activity, the direction of interest rates, the level of corporate valuation, corporate growth objectives and the prevailing animal spirits in the business sector. The Mergers & acquisition world is largely dictated by the underlying business valuation of each firm. This business valuation is often benchmarked through a multiple of EBITDA or multiple of profit.

Different Types of Acquisition

Different firms approach acquisitions with different business models. This often results in firms having disparate views of business valuation. For example, some firms see the acquisitions as a way of gaining control of a company via a takeover. In a takeover, the acquiring firm effects a takeover of board control and brings in their own senior management team to run the company and increase its long term business valuation. Often takeovers are initiated by activist investors and hedge funds who believe that a company’s stock price is lagging. Alternatively, acquisitions are also initiated by firms who are seeking to execute industry consolidations. Often an investment firm will see one particular industry as being fragmented and having too many small companies. These firms seek to create a larger companies through effecting an industry consolidation. The theory behind consolidations is that smaller acquisitions can be purchased at lower prices, and when rolled into a making a larger company, a higher price can be achieved upon an exit.

They Key to Achieving Superior Business Valuation

The best way to position a company for either a takeover or a consolidation is to have compelling business fundamentals. These are the things that really enhance your appeal as a desirable target and drive up your business valuation. Key business valuation drivers include the following: clean financial reporting, diversified customer base, high level of recurring revenue, strong new account generation, above average gross margins and above all a dynamic management team. When these pieces of the puzzle are in place, companies are often to successfully transaction in the mergers & acquisition market.