Valuation in Context

Mergers and Acquisitions

Mergers happen when two companies decide to join forces and become one company. Acquisitions occur when one company decides to buy out another company, which then becomes a part of it. 

The value of a company can increase or decrease depending on if a merger or acquisition is successful or not. A crucial element is that the companies must integrate well together, which is not guaranteed.  

The risks of M&As include integration risk, overpayment risk (that the acquiring company pays too much), and culture clashes. M&As can also result in negative publicity, which can affect consumer behaviour. 

However, the advantages include increased market share, access to talent, and sometimes diversification. If M&As go well, they can have a significant positive impact on the share price of a company. 

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