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What are mergers and acquisitions?
Mergers and acquisitions (M&A) is the area of corporate finances, management and strategy dealing with purchasing and/or joining with other companies. In a merger, two organizations join forces to become a new business. Changing names is just an option, but this is a way for companies to increase revenue and improve operations by together gaining larger market share.
Why would a staffing firm merge with another?
A company that merges to diversify may acquire another company in a seemingly unrelated industry in order to reduce the impact of a particular industry’s performance on its profitability. Companies seeking to sharpen focus often merge with companies that have deeper market penetration in a key area of operations. This help both companies grow with higher revenues.
WHAT IT IS:
An acquisition is the purchase of all or a portion of a corporate asset or target company.
HOW IT WORKS (EXAMPLE):
An acquisition is commonly mistaken with a merger – which occurs when the purchaser and the target both cease to exist and instead form a new, combined company.
When a target company is acquired by another company, the target company ceases to exist in a legal sense and becomes part of the purchasing company. Acquisitions are commonly made by using cash or debt to purchase outstanding stock, but companies can also use their own stock by exchanging it for the target firm’s stock
If Company XYZ wants to proceed with the acquisition, it will make a “tender offer” to ABC’s board of directors. The tender offer will indicate, among other things, how much Company XYZ is willing to pay for ABC and how long ABC shareholders have to accept the offer.
Once the tender offer is made, ABC can accept (1) the terms of the offer, (2) negotiate a different price. If ABC accepts the offer, regulatory bodies then review the transaction to ensure the combination does not create a monopoly or other anti-competitive circumstances within the industries involved. If the regulatory bodies approve the transaction, the parties exchange funds and the deal is closed.
WHY IT MATTERS:
Companies acquire target companies as a growth strategy because it can create a bigger, more competitive, and more cost-efficient entity. This synergy — the idea that the two companies together are more valuable to the shareholders. A well-executed acquisition can be the crowning jewel of a CEO’s career. Knowing how to analyze acquisitions can put individual investors in a great position to profit from the stock price.
Jams Global is currently in the market to merge and or acquire other staffing firms. If interested please contact our M&A department directly just click the Contact us button and submit your contact information, someone from our team will contact you soon.
We are experts:
- Develop an acquisition strategy – Developing a good acquisition strategy revolves around the acquirer having a clear idea of what they expect to gain from making the acquisition – what their business purpose is for acquiring the target company (e.g., expand product lines or gain access to new markets)
- Set the M&A search criteria – Determining the key criteria for identifying potential target companies (e.g., profit margins, geographic location, or customer base)
- Search for potential acquisition targets – The acquirer uses their identified search criteria to look for and then evaluate potential target companies
- Begin acquisition planning – The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger or acquisition the target company is
- Perform valuation analysis – Assuming initial contact and conversations go well, the acquirer asks the target company to provide substantial information (current financials, etc.) that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target
- Negotiations – After producing several valuation models of the target company, the acquirer should have sufficient information to enable it to construct a reasonable offer; Once the initial offer has been presented, the two companies can negotiate terms in more detail
- M&A due diligence – Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc.
- Purchase and sale contracts – Assuming due diligence is completed with no major problems or concerns arising, the next step forward is executing a final contract for sale; the parties will make a final decision on the type of purchase agreement, whether it is to be an asset purchase or share purchase
- Financing strategy for the acquisition – The acquirer will, of course, have explored financing options for the deal earlier, but the details of financing typically come together after the purchase and sale agreement has been signed.
- Closing and integration of the acquisition – The acquisition deal closes, and management teams of the target and acquirer work together on the process of merging the two firms