Valuation in Context

Mergers and Acquisitions

1

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.

2

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.

3

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.

4

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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