Business

LEARN MORE ABOUT MERGERS AND ACQUISITIONS

Mergers and acquisitions are not a simple matter. As a prudent investor, you must be able to analyze the potential effects of such decision. Read on to know about these.

Difference between Mergers and Acquisitions

Mergers and acquisitions may look the same, but they are quite different from each other. In many cases, the distinction may be more about politics and semantics. Meanwhile, there are many huge corporations that make quite a few acquisitions while still maintaining relatively low volatility.

In general, if the corporate structure and leadership of the company in which you own some shares do not undergo a lot of changes, you may be looking at an acquisition. On the other hand, if the business’s structure and model changes a lot, then it’s more on the side of a merger.

Different Buyout Circumstances

You also have to take into consideration the different circumstances surrounding the buyout. You should learn more about the nature of the merger and know key information concerning the other company involved. You should also know more about the types of benefits that the shareholders are receiving, which company is virtually in control of the deal, and any other key financial and non-financial considerations.

Although it may sound illogical, owning the company that’s being acquired can be a windfall for investor. If this company has shown decent performance and has good prospects, a certain amount of goodwill may be involved.

Goodwill usually accounts for intangible assets, but if such assets have not been factored into the stock price when bought your shares of the company being bought, you can end up on top.

Your Vote’s Consideration and Importance

Bear in mind that as a shareholder in a company, you also have a say on the decision of merging with another company.

The usual voting scenario for a public company will end with a shareholder vote on the issue of the merger. If your analysis and consideration indicates that a merger will not good for the company’s future, or if you think the merger is a big step forward for your company, you can use your vote to exercise power over the decision-making process of the company.

Non-Financial Considerations

You also have to think about non-financial considerations regarding a merger deal, as it’s not always about money. There’s a chance that the merger will result in jobs loss, or the other company has a campaign that you deem unreasonable and that you don’t support. Certainly, financial aspects weigh heavily on decision-making, but non-financial aspects are also worth considering and looking into before you cast your vote.

Financial Reports

Never forego examining key financial statements for each of the company involved in the merger. Analyze the financial statements of the company if you’re not familiar with it, and determine for yourself if it is a good investment.

When analyzing financial statements, be sure to look over the updated financial statements and annual reports from both companies.

Changing Dynamics

The new company formed by the merger will usually have a few noticeable changes from the origin company. Most common among these is the change in leadership. Certain concessions are typically made during the negotiation stage, and executives and board members of the new company will change to some degree.