The merger and acquisition (M&A) market is a crucial element of the growth strategy for many public companies. Large public companies that have excess cash often seek opportunities for acquisitions to gain inorganic expansion. M&A is usually a combination of two companies from the same industry, at similar levels in the supply chain.

Generally, a company can purchase another company for stock, cash or the assumption of debt. The investment bank involved in the sale may sometimes provide financing to buyer’s company as well (known as staple financing).

M&A usually starts with a internet thorough analysis of the target business, including financial reports as well as business and management plans, and other relevant data. This process is called valuation and can be carried out by the company that is buying it or outside consultants. Typically, the business performing valuation should consider more than just financial information, like the culture fit and other aspects that affect the success of the deal.

The most common reason to create a merger is to grow. The size of the company increases its bargaining power, and it reduces costs. Another motive is diversification which helps a business to weather downturns in the market or provide more stable revenues. Lastly, some companies acquire competitors to establish their place in the market and to eliminate future threats. This is referred to as defensive M&A.

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