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What Are M&A Transactions?

M&A transactions involve the acquisition of one business by a different one, usually for cash or stock. The aim is to attain an advantage m&a transactions that will last on the market. It’s not the perfect solution for every strategic goal however, those who know what it has to offer and utilize it wisely will be able to achieve substantial growth.

One of the reasons for M&A is that it allows companies to gain economies of scope, the phenomenon that states “one plus one equals more than two.” For instance when Facebook acquired WhatsApp and Instagram it was able to tap into the needs of a brand new customer base without needing to invest massively in developing these services. It also gained scale and market presence, which gives it more bargaining power suppliers or customers.

A common motive is the desire to build an empire, and managers are motivated to buy businesses that will increase the market share or decrease competition. This strategy is extremely successful, if executed in the context of well-defined objectives and with adequate financial forecasts.

M&As can also help a business survive and thrive in turbulent markets. When credit quality declined as banks merged to safeguard themselves against the Great Recession from 2008-2011. It’s also a common method to diversify revenue streams through the purchase of companies in another industry or in a different region. For instance, retailers frequently acquire technology or e-commerce companies to open new markets and increase revenues. A common mistake is to view M&A as a mere financial tool without taking into account the strategic value created.

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