Mergers & Acquisitions (M&A)

Mergers and acquisitions involve one company buying another, or two combining into one. It is a way to build scale quickly by purchasing what exists rather than growing it from scratch.

The motives vary: increasing market share, acquiring technology the company lacks, entering new regions, or removing a competitor. Cost synergies from combining operations are another common reason.

On announcement, the target's share price usually rises, since the offer exceeds the market price. The acquirer's often falls, on concern that it overpaid.

A substantial proportion fail. Expected synergies do not materialise, cultures clash, and integration costs exceed forecasts. Study after study finds roughly half falling short of expectations.

What matters to an investor is the price paid. Buying a good company far too expensively still harms shareholders, and an acquisition producing a large goodwill balance can return later as an impairment.