Mergers & Acquisitions and Value Creation for Shareholders


When talking about mergers, we can think of the act of combining or coalescing. But, more generally, and in economic terms, a merger is a deal to unite two existing companies into a one new legal entity by transferring the properties to one surviving corporation.
Most mergers unite two existing companies into one newly named company. Whereas an acquisition or takeover can refer to the act of acquiring or gaining something, it occurs when one entity takes ownership of another entity’s stocks, equity interests or assets.
Mergers and acquisitions are motivated by several reasons, but the main objective is always the same: Making more money. For that, companies must ensure that the deal will benefit their operations and they will not end losing.
During the 1980s, investors have learned from many disappointments that resulted from the frenzy of mergers and acquisitions. But, from the 1990s, thanks to market deregulation worldwide but especially in Europe to pursue the European Union’s objective to create a one single market in many areas, a new and intense wave of mergers and acquisitions took place and most of them were beneficial for the different actors.
Mergers and acquisitions are increasing year after year and 2017 was not an exception to the rule with operations estimated at 4.740,97 billion, a bit far from the 2015 record with its 5.871,02 billion dollars.
A priori, when it comes to mergers and acquisitions, the creation of shareholder value is possible because you can turn the business targeted with new management teams.
The analyst in mergers and acquisitions responsible for the study must ensure that the operation is a success for everyone and that the company he represents doesn’t pay much more than the real value or doesn’t sell less the present value of company depending on its position.
For long- term mergers, there is no link specifically highlighted by the design offices between mergers and profitability. But years after the M&As, some groups have a positive impact as was the example in the field of automotive of the giant Renault- Nissan, while others such as Daimler and the US group Chrysler have more trouble with a merger that led to the fiasco.
So, it is clear that mergers and acquisitions do not always create value, it can happen that companies are losing at the end. What matters in the operation is to accurately measure at what price you can buy but also how to avoid surprises when the assets are overvalued.
This scenario is likely to happen and after the takeover, financial inspectors may have bad surprises by looking at statements. Companies must protect its hazards before finalizing the agreement and force the company which is selling to a guarantee of asset and liability management and therefore commit to compensate the buyer if the assets decrease or liabilities increase after the transfer, but for one or more causes that are prior to the assignment.
This warranty protects the buyer from overvalued assets, lack of customer insurance or hidden debt, but such negotiations to establish this clause can often be a source of tension between the two parties and be a hindrance to the operation. 

Babacar DIOP

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