Corporate Finance For Dummies
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M&A stands for mergers and acquisitions. Both a merger and an acquisition are forms of integration between corporations. Mergers and acquisitions aren’t the only types of corporate integration, but the term M&A has entered the popular vocabulary, so M&A includes any of a number of corporate integration options despite the term itself referring to only two.

M&A can also refer to the splitting up of companies, either selling, stopping, or otherwise parting with operations that were once part of a single company. So, on the whole, M&A is a field that deals with an odd trait inherent in corporations — that is, their ability to combine, divide, become each other, become something else, and otherwise interact in very permeable manner with other corporations.

M&A is a complicated issue that involves a lot of consideration about the potential for a number of different things to integrate well, including the corporations’ operations, their management, corporate culture, their branding, their marketing and distribution, and a great number of other issues.

M&A isn’t purely a financial concern, not by a long shot, but these are all secondary considerations for executives as they determine whether or not a merger will work only after they’ve already determined there’s potential for financial benefit.

In other words, the primary motivation for M&A will always be money. After it’s been established that there’s money to be made, then it becomes time to do all the extra work to determine whether or not it’s possible to tap into the metaphorical gold mine.

That being said, a corporation can make money through M&A in a number of different ways. Two corporations that are individual from each other don’t stand to benefit if they integrate their two respective organizations only to keep earnings and market share between them unchanged. There must be some form of gain from the synergy between the two corporations.

Yes, synergy is one of those seemingly nonsensical management terms that never seems to work out, but that’s primarily the result of ineffective M&A. A great number of motivations are behind M&A, but far too many companies are too anxious to participate in such activities and tend to either underestimate the difficulty of making it happen or make the assumption that any M&A will benefit the company without evaluating the value of the proposed integration.

In other words, synergy has become a bad word because it’s used too often as the sole justification for M&A, rather than actually determining what synergy will come out of the decision. That’s just bad management.

When it comes to M&As, you have one big consideration: the legal consideration. A lot of anti-trust law around the world says that corporations can’t integrate their operations in certain ways or, sometimes at all, if it significantly changes competition in the industry.

If two corporations decide they want to merge, but only three corporations offer that particular product, then odds are the government is going to stop them from merging, sometimes fining them for predatory business practices.

If the corporations are based in one nation that allows the merger but they also have operations overseas, they may very likely end up getting fined in only one of those nations. This can be very expensive both in terms of fines as well as in terms of expenditures on the M&A-in-progress, so it’s better to assess the anti-trust implications of any M&A before even making the attempt.

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Kenneth W. Boyd has 30 years of experience in accounting and financial services. He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics.

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