Businesses of all sizes and across all sectors are no doubt familiar with the increasing ubiquity of mergers and acquisitions (M&A). Companies embark on M&A deals for various financial and strategic reasons, but they tend to be rather complex transactions so careful consideration and planning must take place before jumping in head first. One of the key things that a company must understand when determining whether to merge with another company, acquire one, or perhaps be acquired itself is the type of entity or people that will be involved in facilitating the deal. There are different ways to structure an M&A deal and how it is done often impacts the way in which things will play out after the fact. Here are some of the most common players in the M&A space:
Successful companies tend to be run by leaders who are constantly assessing strategy. These companies usually have an ongoing strategy as to how the company will be run, the people the company will hire, the markets the company will seek to dominate, and the clients and customers the company hopes to attract, among other key strategic targets. Although most M&A deals would not usually be described as straightforward, the most basic type is actually fairly straightforward in the sense that one company seeks to join forces with another. For companies to grow and expand into new markets, it is important to identify and leverage existing resources within the desired space, such as another company.
Private Equity Funds
Private equity usually entails a pool of funds from high net worth individuals or certain types of investment vehicles with the goal of putting the capital to work to ensure high yields for all investors and managers involved. Of course, one way to do this is by purchasing successful businesses or those that appear bound for success, investing the available resources into making them even more successful, meaning even more profitable, and then turning around and selling the acquisition for a handsome sum anywhere from two to ten years later. Private equity funds normally focus on the superstars within their field and engaging in a buyout with this kind of entity can bring along a great deal of pressure and expectations. But, assuming that all goes well, everyone stands to be financially rewarded quite generously.
Special Purpose Companies
Sometimes investors want to own a piece of another company, but they do not have the means to do it via a traditional route. One way that this can be done is through a special purpose company. This is almost like a public shell company established for the primary purpose of merging with another enterprise. The investors buy their shares and then when the company purchases one or more businesses, they are allocated a portion of the returns. These can be kind of tricky because they tend to combine the advantages and disadvantages of both public and private equity.
Management Buyouts or Buy-ins
In some cases, internal or external management teams will seek to take over a business. These management teams usually have impressive backgrounds and expertise and can take a company to new levels. And, they often have a very strong incentive to work hard to ensure that the company does extremely well, as they may be required to commit some of their own capital. This may be done in exchange for additional equity or special bonuses, but the payouts are often tied to specific performance expectations.