Dictionary / How companies make money
What Are Mergers and Acquisitions?
Mergers and acquisitions, or M&A, are deals where companies combine or one company buys another. A merger joins two companies; an acquisition is one company taking over another.
Merger vs acquisition
In a merger, two companies agree to become one new company, often of similar size. In an acquisition, a bigger company buys a smaller one, which then becomes part of the buyer.
Why companies do it
- To grow faster than building from scratch.
- To buy new products or technology.
- To cut costs by combining teams.
- To remove a competitor.
What happens to the stock?
The company being bought usually jumps in price, because buyers pay a premium. The buyer's stock often falls a little, because many deals cost too much. Paying above book value creates goodwill on the buyer's books.
Do mergers work?
Many do not deliver what was promised. Merging two company cultures is hard. Regulators can also block deals that would hurt competition.
See it in real companies
Open a company to see what it sells and how it makes money.