The market for mergers and acquisitions is among corporate finance’s most vibrant and lucrative markets. M&A is not a strategy that every business can implement however for those that can, it could provide tremendous potential for growth. M&A transactions can be very complex and require careful planning and execution in order to be successful. The M&A process begins with a preliminary evaluation of the company. This could involve high-level discussions between sellers and buyers to assess how the companies could be integrated strategically and how their values align and what synergies could exist.

Once the initial review is completed, the company that is buying may make a preliminarily offer to the firm it is targeting. This can be done by way of an outright purchase or a tender. A company can acquire all shares of a company in an outright acquisition. This does not affect the target company’s board of directors and management and typically occurs for a premium over what the shares were worth prior to being purchased.

A tender offer permits an publicly traded company to contact the shareholders of a publicly held company and offer to purchase their shares at a price agreed on by both parties. This is a hostile takeover and requires the shareholders of the company to be in agreement with the transaction before it is completed.

The potential to create savings in revenue and costs through the combination of two companies is the main reason for companies looking to M&A. If a car maker buys a seat belt manufacturer it will benefit from economies of scale which will reduce the cost per item as production increases. Companies also use M&A to gain access to technology that would be costly or time consuming to develop internally.