Why Mergers and Acquisitions Can Be an Investor’s Best Friend

Posted by Admin | November 7th, 2014

The terms “merger” and “acquisition” often ring panic bells inside the minds of investors— consumers, too, for that matter. Truth be told, mergers and acquisitions can actually be a blessing in disguise to a struggling business. Financiers like Cary Kochman have built successful careers around mergers and acquisitions, but they’re not the only beneficiaries. Many companies have been saved by a merger or acquisition and many shareholders have retained or recouped their investments. So what exactly are mergers and acquisitions and how can they be a positive instead of a negative thing?

Making Meaning of Mergers

A merger is, as its name suggests, the joining of two companies into one. Mergers are usually designed to benefit both companies and create a singular and stronger business entity. For example, the recent proposed merger of energy giants, Encana and Athlon Energy, Inc., will increase Encana’s oil production by approximately 30,000 barrels of the black gold per day. This will obviously benefit the merged company’s position within the fuel industry and potentially increase all shareholders’ ownership within the merged company.

Figuring Out Acquisitions

An acquisition is an outright takeover of a company by another stronger one. While most liken an acquisition to a hostile takeover, and admittedly, sometimes acquisitions are unpleasant, the general purpose behind the acquisition is to allow the acquired company to continue its business under its new owner. For example, when Google acquired Android, a core portion of the mobile phone industry was streamlined. Today, over 300 million Android-powered phones and tablets seamlessly interact with Google mail, calendar, drives and other apps. They also successfully stack the Android operating system in competition against Apple.

Why M&As Deals Don’t Doom Shareholders

A common myth is that mergers and acquisitions hurt shareholders but that’s not true. The core principle behind mergers and acquisitions is to create a singular company that holds a stronger position within its industry, thereby building a stronger position within the financial markets. Mergers and acquisitions are designed to increase shareholder values within the newly instituted entity, over and above the initial value in the singular company. In the long run, the merged or acquired company’s goal is to build a stronger, more solid presence in the marketplace. This can only benefit shareholders in the end.

For a struggling company, merging with or being acquired by a stronger company is an appealing option over filing for bankruptcy and closing its doors, particularly when bankruptcy means shareholders will likely see a great portion, if not all, of their investment lost. This is where merger and acquisition experts come into play. These financial geniuses know how to take a struggling company and place it back into the business game, poised for success. By merging the smaller company with a stronger counterpart, or acquiring the mom and pop shop outright, the company is infused with new financing and position to continue successfully operating under the new entity. This merge not only benefits the business but also its shareholders.