What’s the Deal with Mergers & Acquisitions?

Welcome to ‘What’s the deal with?’ Boar Money’s new column. In each issue, Boar Money will explain a different issue in Finance in a … different way. Picture the salt & pepper canisters in explaining the offside rule. That’s what we are doing here. From student loans, right through to Arbitrage trading. So, here goes…

Mergers & Acquisitions

Warwick University is rife with wannabe Bankers. It’s a trend like any other. You go to a Finance careers event on Campus, and it’s packed. Apparently students can’t get enough. One phrase that you will hear thrown around at these events, is ‘Mergers & Acquisitions,’ or ‘M&A’ for short. Everyone wants to be an Investment Banker, and everyone wants to go into M&A, but what does this mean? 

Generally, the terms ‘merger’ and ‘acquisition’ are used interchangeably.

Traditionally defined, M&A is used to refer inter-company consolidation. A merger is a combination of two companies to form one, new entity, whilst an acquisition is the purchase of one company by another in which no new company is formed. All credit to Investopedia here! M&A Advisory is a closely related phrase. Usually a prime function within an Investment Bank, M&A Advisory is, as the name suggests, concerned with providing advice as to the execution of a proposed M&A deal. Investment Banks will spend a lot of their time pitching potential M&A deals to clients in work defined as origination, and, once they receive some interest, they carry through with the deal’s execution. Need a little more explaining? Okay. Picture this:

You’re out in Smack. Vodbulls are £1, and pre-drinks were a success. Time to get on the pull. Prove to yourself that you are capable of enticing a member of the opposite sex, live a wild fantasy for the night, and forget about it the very next morning.

Some people prefer tall blondes, whilst others prefer shorter brunettes. Some companies prefer targets with a high, but uncertain growth profile, whilst others prefer steady companies with a proven track record

Doesn’t really sound like the basis for a definition, but that’s where you’re wrong. When two people hook up, that’s a merger. Both parties consent to the combination. And as with mergers, reasoning can differ, and there is the element of preference. Some people prefer tall blondes, whilst others prefer shorter brunettes. Some companies prefer targets with a high, but uncertain growth profile, whilst others prefer steady companies with a proven track record. Mergers also come in different forms. You can have a merger of equals, when two companies of the same stature join together, or when two 7s get with each other, or they can be unequal, when two companies of different levels of power combine, when a 9 gets with a 2. Of course, in this instance, the terms of the merger need adjusting slightly. Acquisitions on the other hand come with a little more reluctance. When you wouldn’t normally get with that guy, but with sufficient vodbulls, or a merger premium, you are a little more enticed.

Of course, you would never go ‘on the pull’ without your trusted sidekick, your partner in arms, your wingman. This guy is your Investment Banker. He is your M&A advisor. He is there to weigh up the pros, and the cons, and to assist you in any way he can. Value the goods, and advise you on your plan of action. Your wingman does all of the origination work, scouting out potential targets, and marketing you as best he can. If you exchange terms and conditions, and the deal goes through, the Banker receives his fee – Viallis on the way home should do the trick.

There you have it. Mergers & Smack… Who would have thought it?

Want something explaining? Send your suggestions through to money@theboar.org and we’ll see what we can do.