The year 2016 has made a mark when it comes to mergers and acquisitions. There were top companies acquiring its competitors and thus the joint company now is earning profitable revenues. But the question is why do companies merge?

The idea behind that is synergy. The combined big entity will grow more and earn more. It can also get the R&D support and technical knowledge. The companies also acquire with it the client base and its relations with HNI clients. The acquisitions may not necessarily be profitable and give a positive outcome. But it all depends on the due diligence that is done before the acquisition and the amount of research work done. The market conditions play an important role and thus, the companies need to be vigilant before taking any further step.

Some of the top acquisitions were- AT&T acquires Time Warner for $66bn, Microsoft and LinkedIn deal for $26.2bn that occurred in the month of June in 2016, Verizon acquired Yahoo for $4.83bn in July, 2016. These big companies growing in their respective industry have shown a remarkable growth and thus to reduce competition and become the market leader, they plan to acquire companies. These acquisitions may take place in exchange of stocks or cash or both. Also, it is possible that acquired company may not cease to exist rather only control changes but company may continue to work independently.

The process of acquisition might seem simple but in reality, it is complex. There are investment bankers, accountants, audit team, stake holders, board etc. involved in the process. The plan starts a year ago and after financial and risk calculations, the company prepares documents and other financial sheets. Sometimes, reverse acquisitions also take place. This happens when a small company (in terms of revenue) takes over a big company. Such cases are rare but not impossible. The effect of mergers and acquisition announcement can be visible in the share price fluctuations in both the acquiring and the acquired company. Also, there might be cases of hostile takeovers when a powerful company takes over the control of the other company.