All businesses strive to grow and expand. There are broadly two ways a business can get bigger, either through internal growth or external expansion. The internal growth is through the regular growth path of an entity, by use of advanced technology, acquisition of assets, better supply chain management and new lines of product among many other techniques. However hard the company may try, this path takes its natural course and time to reap results. The other way companies look to grow is by exploring the option of corporate restructuring which is done by mergers, takeovers or acquisitions. The external path way of growth is very popular among companies globally as it helps in crossing trade barriers, enables free of capital across countries and combats the increased globalized competitiveness.
A merger or acquisition is one of the most significant corporate events for a company, stamped in its history forever. Amidst an atmosphere of increased competitiveness, the strategy of merger and acquisition is common for small as well as large businesses. The intention behind such a move or decision is unique to every business, but is based on the principle of creating more value (after combining) than the individual companies are worth individually. The additional value created by the merger or acquisition process is called synergy. Though it sounds simple, but the whole process of a merger, takeover or acquisition to create synergy (financial benefit) is daunting, with large sum of money, paper work, government regulations, legalities and accounting procedures involved. (Related Reading: What Makes An M&A Deal Work?)
Merger & Acquisition Firms
The merger or acquisition deal process can be intimidating and this is where the merger and acquisition firms step in, to facilitate the process by taking on the responsibility for a fee. These firms guide their clients (companies) through these transformative, multifaceted corporate decisions. The various types of merger and acquisition firms are discussed below. The role of each type of firm through broadly is to successful seal a deal for its clients but they do differ in their approach and working. (See: The Biggest Mergers & Acquisitions In The U.S.)
Investment Banks The investment banks perform a variety of specialized roles – they carry out transactions involving huge amounts, in areas such as underwriting. They act as a financial advisor (and/or broker) for institutional clients, sometimes playing the role of an intermediary. They also facilitate corporate reorganizations including mergers and acquisitions. The finance division of investment banks manages the merger and acquisition work, right from the negotiation stage till the deals closure. The work related to the legal and accounting issues is outsourced to affiliate companies or empanelled experts.
The role of an investment bank in the procedure typically involves vital market intelligence in addition to preparing a list of prospective targets. Then once the client is sure of the targeted deal, an assessment of the current valuation is done to know the price expectations. All the documentation, management meetings, negotiation terms and closing documents are handled by the representatives of the investment bank. In cases where the investment bank is handling the selling side, an auction process is conducted with several rounds of bids to determine the buyer. Some of the major investment banks are Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), JPMorgan Chase (NYSE: JPM), Bank of America Merrill Lynch (NYSE: BAC), Barclays Capital, Citigroup (NYSE: C), Credit Suisse Group. (See: The Buy-Side Of The M&A Process)
Law Firms Corporate law firms are popular among companies looking to expand externally through a merger or acquisition, especially companies with an einternational borders. Such deals are more complex as they involve different laws governed by different jurisdictions thus requiring very specialized legal handling. The international law firms are best suited for this job with their expertise on multi-jurisdiction matters. Some of the leading law firms engaging in mergers and acquisitions are Wachtell, Lipton, Rosen & Katz, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), Cravath, Swaine & Moore LLP, Sullivan & Cromwell LLP, Simpson Thacher & Bartlett LLP and Davis Polk & Wardwell LLP.
Audit & Accounting Firms These companies also handle merger and acquisitions deals with obvious specialization in auditing, accounting and taxation. These companies are experts in evaluating assets, conducting audits and advising on taxation aspects. In cases where cross border merger or acquisition is involved, the understanding of the taxation part becomes critical and such companies fit well in such situations. In addition to audit and account expects these companies have other experts on the panel to manage any aspect of the deal well. Some of the well known firms from this category with specialized services in mergers and acquisitions are: KPMG, Deloitte, PricewaterhouseCoopers (PwC) and Ernst & Young (EY); these companies together are tagged as the Big Four.
Consulting & Advisory Firms The leading management consulting and advisory firms guide clients through all stages of a merger or acquisition process – cross industry or cross border deals. These firms have a team of experts who work towards the success of the deal right from the initial phase to successful closure of the deal. The bigger companies in this business have global footprint which helps in identifying targets based on suitability in all aspects. The firms work on the acquisition strategy followed by screening to due diligence and advising on price valuations making sure that the clients are not overpaying and so on. Some of the well-known names in the business are: AT Kearney, Bain and Company, The Boston Consulting Group (BCG), McKinsey and L.E.K. Consulting,
The Bottom Line
Every year companies enter into inter industry, cross industry, cross border deals running into trillions, though the success rate of such deals is around fifty percent. Huge sums of money are paid to companies for being a deal maker or facilitator. The fee is dependent on the size and worth of the companies involved in the merger and acquisition process. According to Bloomberg Markets’ annual ranking of M&A advisers in 2013, Goldman Sachs topped the list with an estimated $1.23 billion in earned in fees. (See: How Mergers and Acquisitions Can Affect A Company)
At the time of writing, the author had no holdings in any of the companies listed.
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