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What are mergers and acquisitions and why are they done?

Home » blog » What are mergers and acquisitions and why are they done?

Mergers and acquisitions transactions are not simply negotiations for the purchase or combination of assets. They allow companies to expand their capabilities, enter new markets and increase their market share in existing markets. M&A (mergers and acquisitions) includes both mergers and acquisitions. Each of these forms of interaction has its own purpose and strategy.

Mergers and acquisitions enable companies to grow rapidly, adapt to changes in the market and increase their competitiveness. This is often one of the most effective ways to stay ahead of the competition and gain access to new technologies or talent.

What is M&A (mergers and acquisitions)?

Mergers and acquisitions are a series of processes related to the consolidation and acquisition of companies:

  1. A merger is a voluntary combination of two or more parties who pool their assets and resources to achieve greater success together.
  2. A takeover is the purchase of a company by another company, in which the acquired company completely loses its legal independence. The former are usually carried out between institutions of the same size, while the latter are usually initiated by a larger holding company.

An example of a promising global M&A transaction: the merger between Disney and Pixar. This allowed Disney to strengthen its position in the entertainment industry and gain access to animation technologies. Another example is the acquisition of LinkedIn by Microsoft, which allowed Microsoft to integrate its ecosystem into the largest professional network in the world.

The main difference between both transactions lies in the nature of the combination: a merger is more a typical example of a corporate transaction, while an acquisition often has a hostile connotation because the acquired party may not agree to the terms of the transaction.

Types of M&A

What is M&A (mergers and acquisitions)?Each form pursues its own goals and objectives. There are several main types of M&A:

  1. Horizontal: The collaboration between representatives of an industry to increase market share. Example: the merger of Fiat and Chrysler, which created a more competitive automobile group.
  2. Vertical: The association of institutions located at different levels of the same production chain. Example: Amazon buys a logistics company to optimize product delivery.
  3. Conglomerate: Merger of organizations operating in different sectors, with the aim of diversifying business activities. For example, when Berkshire Hathaway acquired Duracell, the company expanded its product range and minimized risks.
  4. A hostile takeover occurs when an organization takes over another organization against its will. This is done by buying shares directly on the stock exchange. A well-known example is Microsoft’s attempt to acquire Yahoo.

All these factors ensure that companies can flexibly choose a growth strategy based on their objectives and the current market situation.

Merger and acquisition transactions in Russia

The Russian market has its own characteristics that differ from global trends. Sanctions and economic instability have had a significant impact on merger and acquisition activities. Despite these restrictions, Russian entities continue to use mergers and acquisitions to expand their capabilities and strengthen their position in this area. Another feature is the active involvement of the government, which often determines the direction of transactions and influences the final outcome.

In recent years, transaction activity in the oil and gas sector has increased as major players seek to consolidate their assets and strengthen their control over resources. An example of this is the partnership between Rosneft and Bashneft, which allowed Rosneft to strengthen its position as one of the largest oil producers in the world.

In addition, transactions in the IT and telecommunications sectors play an important role in the Russian M&A market. Yandex is actively acquiring startups to strengthen its position in the technology and logistics sectors.

Strategies for companies

Mergers and acquisitions play an important role in developing growth and development strategies. By using different approaches, companies can optimally respond to changes and increase their competitiveness. Main methods:

  1. Horizontal measures help to reduce the number of competitors and increase market share. For example, large supermarket chains often merge to jointly save costs and strengthen their position.
  2. Vertical systems allow a company to control more stages of the production cycle, thus minimizing costs and improving logistics. An example of this type of transaction is buying from suppliers or distributors.
  3. Diversification through conglomerate transactions helps to minimize risks. For example, manufacturing companies can acquire financial assets for diversification purposes.
  4. Acquisition of innovative start-ups. Many large companies undertake small-scale projects to gain access to new technologies and innovations. This approach allows for rapid adaptation to technological changes, as Facebook did with the acquisition of Instagram and WhatsApp.

Why mergers and acquisitions remain crucial in business

M&A-Transaktionen in RusslandMergers and acquisitions offer companies the opportunity to quickly adapt to changing market conditions, increase their competitiveness and enter new markets. They help to pool resources, technologies and knowledge, which ultimately strengthens the position of organizations and contributes to their long-term success. M&A still plays an important role in the economy. They stimulate innovation, growth and global expansion.

Companies that use strategies intelligently can not only improve their market position, but also become market leaders. M&A is therefore still one of the most attractive instruments for those who want to reach the top of the economy.

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Major mergers and acquisitions with global impact

Mergers and acquisitions are an important instrument of corporate restructuring and influence economic processes to varying degrees. The article examines a number of major mergers and acquisitions that have taken place worldwide and in Russia. By analyzing these transactions, we can assess the role they play in the reallocation of resources and the creation of new development opportunities.

The biggest mergers and acquisitions that changed the business world

Offers that you will not soon forget.

AT&T’s acquisition of Time Warner: a major breakthrough in the media sector

In 2018, AT&T completed the acquisition of Time Warner, creating a new giant in the world of media and telecommunications. Mergers and acquisitions of this magnitude change not only the market, but also the principles of content consumption. This law allowed AT&T to offer integrated services that combined content production and distribution, thus gaining a significant competitive position. Moreover, it accelerated changes in the media sector, forcing competitors to revise their strategies and look for new ways to reach their audiences.

Google’s Motorola Mobility Acquisition Fails

Mergers and acquisitions always involve risks. In 2012, Google acquired Motorola Mobility for $12.5 billion. The goal of the deal was to strengthen Android through closer collaboration in the mobile device space and expanded patent rights. But not everything went according to plan: two years later, Google sold Motorola to Lenovo. This example clearly shows that even giants can achieve unpredictable results. The history of mergers and acquisitions is full of examples of situations where high expectations collide with harsh market reality. Sometimes this led to the most unexpected consequences.

Successful acquisitions and divestitures: who wins and who loses?

Let’s take a look at some deals that have made headlines around the world.

Microsoft’s acquisition of LinkedIn: an example of tactical expansion

In 2016, Microsoft acquired LinkedIn for a whopping $26.2 billion. Often, these types of mergers and acquisitions are carried out strategically with the aim of increasing influence in important market segments. Microsoft saw LinkedIn as an opportunity to strengthen its ecosystem of business and professional services. By integrating a professional social network into its platform, Microsoft gained access to a significant business audience and a wealth of data, significantly strengthening its position in the B2B sector. This is a clear example of how the right integration of assets can open up new opportunities and significantly increase competitiveness in the market.

Exxon-Mobil merger: dreams of dominance

When Exxon and Mobil decided to join forces in 1999, they created an energy giant with all the resources and capabilities to become a leading player on the world stage. Transformations of this magnitude rarely go smoothly, and the Exxon-Mobil merger was no exception. Overcoming numerous legal and organizational obstacles was only the beginning of a long journey. But despite all the difficulties, the outcome was positive. The new energy giant was able to shape the market conditions and secure the beginning of a new energy era by setting the course for the coming decades.

How mergers and acquisitions are changing the business landscape in Russia

The Russian Federation is also a country where notable mergers have become a permanent part of its history.

Acquisition of VimpelCom and Tele2: a merger that benefits consumers

In 2013, one of the most notable mergers in the Russian telecommunications market took place: VimpelCom and Tele2 decided to join forces. This transaction was of great importance because it allowed both companies to strengthen their position in the Russian market and offer more advantageous tariff plans. This improved the quality of communication and reduced the cost of service. The synergies created by the merger have significantly strengthened the position of the companies in the face of fierce competition from other major players. This is a great example of how local solutions can have a great impact on the market and the consumer. They improve the level of service and provide competitive advantages.

Merger of Sberbank and Yandex.Market: an evolutionary path

Mergers and acquisitions in Russia are generally no less ambitious than in the West. In 2020, Sberbank and Yandex.Market announced their partnership, creating the country’s largest e-commerce platform. This move allowed both companies to strengthen their positions and create a symbiosis of technological and financial capabilities, which is especially important in competition with global players. The impact of mergers and acquisitions on the market is always felt differently. This example shows how strong internal alliances can increase resilience to external challenges.

The most spectacular and revolutionary mergers and acquisitions in world history

In the end, we are left with more memorable experiences in global practice.

Facebook’s acquisition of WhatsApp: a commitment to social media

In 2014, Facebook acquired WhatsApp for a staggering $19 billion, making it one of the largest deals in the tech world. Such large-scale mergers and acquisitions often raise questions about their viability, but in the case of WhatsApp, it was a long-term strategy. Facebook was trying to conquer the instant messaging market and integrate its own services with WhatsApp to strengthen its dominant position in the social communications space. Thanks to this act, Facebook was able to expand its audience and create a unified communications ecosystem, which led to a huge increase in users and advertising revenue.

The Disney-Pixar merger: a story of synergy that changed an industry

One of the most important transactions in history was Disney’s acquisition of Pixar in 2006. Mergers and acquisitions between these giants are always considered risky, but this particular case marked the beginning of a true revolution in the animation industry. Disney, which had struggled to create high-quality animation content, was able to breathe new life into its studio by introducing Pixar’s unique creative approach. And Pixar gained access to enormous resources and marketing opportunities. How are mergers and acquisitions changing the business world? This case is a clear example of how synergies can lead to a qualitative leap forward in an entire sector.

Conclusion

Involvement is the engine of change in the modern world. It helps companies grow, launch new projects and shape a new business landscape, creating new opportunities and new challenges. Mergers and acquisitions always involve courage, risk and great potential. The future of the economy depends on those who are willing to take risks and change the rules of the game to move forward.

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Popular Mergers and Acquisitions Examples

Mergers and acquisitions are an integral part of modern business. These processes serve as a tool for expanding businesses, entering unfamiliar markets, and overcoming crises. Concrete examples of mergers and acquisitions illustrate how business leaders change the structure of their companies and shape global market conditions.

Why do companies merge and acquire companies?

Mergers and acquisitions are not just a fad for wealthy companies. Behind every decision of this nature lies cold calculation and careful analysis.

Examples of the world’s largest mergers and acquisitions:

  1. Merger of Exxon and Mobil. In 1999, the largest merger between two energy giants took place. The $81 billion deal led to the creation of a new company: ExxonMobil.
  2. This combined two strong brands, allowing us to optimize costs and strengthen our position in the global oil market. The resulting synergies reduced the cost of oil production and refining, making ExxonMobil a market leader.
  3. Facebook acquires WhatsApp. In 2014, Facebook acquired WhatsApp for $19 billion to attract new users and become a major player in the messaging market. At the time of the deal, WhatsApp had approximately 500 million users; today, it has more than 2 billion.
  4. Time Warner is acquired by AT&T. In 2018, AT&T completed its acquisition of Time Warner for $85 billion. This allowed AT&T to reach a new level in the media and content marketing sector by integrating both content distribution and production into its services. As a result, WarnerMedia became part of AT&T and could compete with Netflix and Disney.

These examples of mergers and acquisitions (M&A) show how companies are looking to strengthen their market position, improve their profitability, and increase their competitiveness.

Main Types of M&A: From Horizontal to Conglomerates

There are different types of M&A, each with its own purpose and consequences.

Horizontal Mergers

A merger of two companies operating in the same industry, with the goal of eliminating competitors and increasing market share. An example is the $130 billion merger of Dow Chemical and DuPont in 2017. The merger allowed the companies to create three separate business units focused on agriculture, materials, and specialty chemicals. This resulted in increased competition and greater overall efficiency.

Vertical Mergers

When companies operating in different segments of the same supply chain merge. An example is the aforementioned acquisition of Time Warner by AT&T. The merger gave AT&T complete control over the entire process, from creating content to delivering it to users.

Conglomerates

A merger of organizations that operate in completely different sectors, in order to diversify operations and reduce risk. An example is the acquisition of Precision Castparts by Berkshire Hathaway in 2016 for $37.2 billion. Precision Castparts produces components for the aerospace and energy sectors, which allowed Berkshire Hathaway to diversify its portfolio.

What role do mergers and acquisitions (M&A) play in the Russian economy?

There are also examples of large mergers and acquisitions on the Russian market. This is an important part of the economic strategy, which is aimed at improving competition and attracting foreign investment. An example is the merger of Yandex.Taxi with Uber in 2018, worth $3.8 billion. This allowed both parties to reduce costs and join forces in one of the most competitive markets. In doing so, they strengthened their share in the taxi and delivery market.

The consequences of mergers and acquisitions: what happens to companies after the transaction?

Every M&A transaction has consequences that can be both positive and negative. Benefits:

  1. Increases competitiveness. For example, the merger of Bayer and Monsanto in 2018, worth $63 billion, created a market leader in the agricultural sector and made it more competitive globally.
  2. Optimization and cost reduction. In most cases, companies combine resources and optimize costs. This can have consequences for production, marketing, and logistics.
  3. Layoffs and cultural conflicts. Often, a merger leads to the elimination of duplicate functions, resulting in layoffs.

List of examples of successful mergers and acquisitions:

  1. Facebook and Instagram (2012). The $1 billion deal allowed Facebook to significantly expand its reach among younger audiences and strengthen its position in the mobile app segment.
  2. Amazon and Whole Foods (2017). The $13.7 billion acquisition of the supermarket chain allowed Amazon to expand its presence in grocery retail and integrate its technology into traditional retail, improving inventory management and logistics.
  3. Google and YouTube (2006). By acquiring YouTube for $1.65 billion, Google became the dominant player in the video content market. Today, YouTube generates billions in advertising revenue and has more than 2.5 billion monthly active users.

Merger and acquisition risks: how to avoid failure

  1. The integration failed. Cultural and organizational differences can make it difficult to integrate two companies.
  2. Revaluation of the company. Buyers often overvalue assets, which leads to financial losses.
  3. Risk of losing customers. If a company’s strategy or management changes, there is a chance that customers will switch to competitors.

To minimize risks, it is important to conduct a thorough analysis of the company, evaluate synergies and overcome cultural barriers among employees.

Conclusion

Examples of mergers and acquisitions show how deeply and significantly this phenomenon affects the global economy. For many companies, mergers and acquisitions are a way to attract capital, strengthen their position and overcome crises. Consolidation processes will remain one of the most important instruments for growth and strategic development in 2024. Mergers always involve risks, but only the willingness to transform allows companies to move forward and conquer new markets.

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