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The market for mergers and acquisitions is one of corporate finance’s most active and lucrative markets. Although it’s not a plan that every company could pursue, for those who can succeed, M&A can create tremendous growth potential. M&A transactions can be complicated and require careful planning and execution to be successful. The M&A begins with an initial evaluation of the business. This can include high level discussions between sellers and buyers to determine how the two companies could be strategically positioned to work together and how their values align, and what potential synergies could exist.

After the initial evaluation, a preliminary offer can be made to the targeted company by the acquirer. Based on the circumstances the process can be carried out through either an outright acquisition or tender offer. A company may purchase all shares of a company through an outright acquisition. This is performed without the board of directors or management of the company being targeted.

A tender offer, on the other hand allows a publicly traded company to directly contact a publicly owned company’s shareholders and offer to purchase their shares for a price that is agreed upon by both parties. This is a hostile takeover that requires shareholders of the company to be in agreement with the transaction before it is completed.

One of the main reasons for a company’s pursuit of M&A is the possibility to realize revenue and cost synergies as a result of the merger of the two companies. For example when a car company acquires a manufacturer of seat belts, it can benefit from economies of scale and lower the cost per unit as production grows. M&A can also be used by companies to gain access to technologies that would be costly or time-consuming to develop on their own.

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