Mergers and acquisitions (M&A) are financial transactions in which two companies merge into a new entity, or a larger company acquires a smaller one, which is then absorbed into the parent or run as a subsidiary. M&A activity surged in 2014 with over 7,500 deals for a combined value of £2.1 trillion.
In 2004, Sanofi-Synthélabo and Aventis, two large pharmaceutical companies, merged to form Sanofi-Aventis, while in 2008, the 150-year-old, $100 billion Tata conglomerate from India acquired Jaguar Land Rover from Ford Motors. Why do companies merge with or acquire each other and who really inhabits the world of corporate buyouts today?
Companies merge when the managements feel that each can offer the other some benefit, thereby benefiting the combined entity. Mergers are a way for a company to both increase its market share and achieve better economies of scale. For the company being acquired it can provide long-term stability and growth. Companies look at mergers and acquisitions when they want to grow quickly and inorganically.
In the case of the Tata-JLR acquisition, the synergies were obvious. The Tata group is a conglomerate that makes commercial vehicles, railway locomotives and the world’s cheapest car, the £1,500 Nano. The company is also among the top ten speciality steel producers in the world. At one stroke, the Tata group acquired a respected but financially weak luxury brand, while affording JLR cheaper access to speciality steel, its key raw material.
In six years since the acquisition, JLR has gone from a loss-making £4 billion company to a highly profitable company with revenues in excess of £21 billion. The company has added three manufacturing plants and over 5,000 jobs in the past four years… Read more
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