M&A is a process of reorganizing companies whereby either one entity absorbs one or more businesses or multiple entities merge and create a new company. The merging entities then cease to exist due to the M&A process.
One of the most crucial acquisition effects is transferring all merged company assets to the buying entity. In exchange for the transfer, the buying company will gain share capital, and the shareholders of the bought companies will acquire shares in the resulting company. The number of shares and capital increase is determined through an accounting methodology that sets the shares’ exchange rate.
According to some of the best business brokers we know, the choice of M&A as a reorganization method depends on the strategy and interests of the participants.
Among the main advantages of intra-group M&A we should mention:
- operational and financial optimization
- reduction of administration costs
- more efficient management
- facilitating financial access
There are cases when a company acquires another company’s shares, and after the acquisition, the acquiring company merges with the company it bought. An example of this is when the purchase is organized as a “leveraged buyout” when the two entities merge (after the acquisition) to meet the financier’s guarantee and financing conditions.