Merger and Acquisition (M&A)

When two companies are merged, they form a new corporate entity, and the two former companies no longer exist.

When a company is acquired by another company, the acquiree becomes a subsidiary of the acquirer and may continue to exist if it is not liquidated.

M&As can create more efficient economies of scale if the companies are in the same business or in similar product lines. However be aware of ambitious expansions into new fields by the company. Sometimes this is a success but more often than not, the company’s management may find out it has bitten off more than it can chew.

An announced M&A deal can cause a large jump in the stock price. However, the deal still needs to be concluded and may need regulatory approval. If the deal falls through, the stock price may experience a fall back to reality.

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