Why Merge, Acquire or Partner With a Business

Question 1

Merger

Answer 1

when multiple businesses voluntarily and permanently combine to form one business

Question 2

Alliance/ Partnership

Answer 2

When businesses or individuals with complementary capabilities or resources agree to cooperate in order to advance their mutual interest. For example, the inventor of a product may engage in a partnership with a lawyer, distributor or marketing agency. The parties typically share the costs, risks and rewards.

Question 3

Joint Venture

Answer 3

When two or more businesses agree to pool their resources and work together on a specific task or project, such as the development or launch of a particular product. The parties typically share the costs, risks and rewards.

Question 4

Benefits of a Merger

Answer 4

• Access to New Markets and Customers
• Access to Complementary Resources
• Economies of Scope
• Efficiency
• Savings
• Reputation
• Innovation
• Competition

Question 5

The possible issues of a Merger

Answer 5

• Loss of Control/ Conflict
• Administration/ Costs
• Inefficiency
• Expropriation

Question 6

Sale and purchase Agreement (SPA)

Answer 6

a legal contract that describes the outcome of key commercial and pricing negotiations and when signed, obligates a buyer to buy and a seller to sell a product or service. Examples include agreements to buy products, agreements to buy companies and share purchase agreements.

Question 7

Premium

Answer 7

Paying a premium means paying an amount that exceeds the market value of a product or company. Premium can be offered by potential borrowers or purchasers to persuade lenders or sellers to engage in transactions. Bidders will offer premiums in the belief that they will be able to extract additional value from the target company post-acquisition, either because it is undervalued, underperforming or unable to operate as efficiently as it could if controlled by the bidder.