Discover Types, Structures, and Valuations in Mergers and Acquisitions (M&A)

In a business landscape, many consider M&A to be a mechanism that increases efficiency and effectiveness in a market economy. Today, many industries are highly fragmented, with numerous small players competing for market share. M&A deals are complex transactions that involve the transfer of ownership, assets, and liabilities between two or more companies.

Many parties, each with their own interests and motivations, can be involved in this typical deal that is complicated and time-consuming. Therefore, a proper valuation is one of the critical keys to success in every transaction. With accurate numbers on the table, the deal is more likely to end in a win for all parties involved.

While many assume to know what these deals are, there are several kinds of business deals that fall under the label of “Mergers & Acquisitions”.

This article will discuss the different types of mergers and acquisitions, its deal structures, valuation methods and much more!

What are Mergers & Acquisitions?

The term mergers and acquisitions refers to the consolidation of companies or their major assets through financial transactions between companies. A company may purchase and absorb another company outright, merge with it to create a new company, acquire some or all of its major assets, make a tender offer for its stock, or stage a hostile takeover. All these are M&A activities.

Merger and Acquisitions

Different types of Mergers & Acquisitions

Mergers and Acquisitions – is an umbrella term, applied to many types of company consolidations. However, mergers are different from acquisitions, these terms are sometimes used independently and inchargeably.

To clarify the different types of M&A and how they differ from each other, here are the most common types of M&A deals:


Merger is a deal, where two companies come together, once the deal is approved by the shareholders. In this, two companies combine as a new entity – keeping the name of any one company. For example, in 1998, a merger deal occurred between the Digital Equipment Corporation and Compaq, whereby Compaq absorbed the Digital Equipment Corporation. Compaq later merged with Hewlett-Packard in 2002.


In a simple acquisition, one company acquires a second company. The acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its organizational structure. An example of this type of transaction is when Omrix Biopharmaceuticals was acquired by pharmaceutical giant Johnson & Johnson.

Tender Offer

A tender offer is bid to purchase some or all of a shareholder’s stock in a corporation. One company offers to purchase another firm’s stock at a special price, typically below the market rate. A company may make a tender offer to existing shareholders to buy back a quantity of its own stock to regain a larger equity interest in the company and as a way to offer additional returns to shareholders.

Acquisitions of Assets

In this case, one company directly acquires the assets of another company. The company whose assets are being acquired must obtain approval from its shareholders. This is often a side effect of liquidation or bankruptcy dealings when a company must sell its assets to settle debts.

Management Acquisitions

Management acquisition a.k.a management-led buyout, where company’s executives purchase a controlling stake in another company, taking it private. The transaction must be approved by the shareholders.

How are M&A structured?

Mergers can be structured in a number of different ways, based on the relationship between the two companies involved in the deal:

Horizontal merger: Two companies that are in direct competition and share the same product lines and markets.

Vertical merger: A customer and company or a supplier and company. Think of an ice cream maker merging with a cone supplier.

Congeneric mergers: Two businesses that serve the same consumer base in different ways, such as a TV manufacturer and a cable company.

Conglomeration: Two companies that have no common business areas.

Mergers and Acquisition(M&A) - Valuation

In an M & A transaction, the valuation process is conducted by the acquirer, as well as the target. The acquirer will want to purchase the target at lowest price, while the target will want the highest price.

Thus, valuation is an important part of mergers & acquisitions, as it guides the buyer and seller to reach the final transaction price. Below are three major valuation methods used to value the target.

Discounted cash flow (DCF) method: The target’s value is calculated based on its future cash flows.

Comparable company analysis: Relative valuation metrics for public companies are used to determine the value of the target.

Comparable transaction analysis: Valuation metrics for past comparable transactions in the industry are used to determine the value of the target.

Both the companies will need to determine the financial structure of the deal. Underpinning these deals is M&A due diligence, where both parties reveal business information, including finances and proprietary information.


Given the breadth of information looked at in M&A valuation methods, you may be wondering how to prepare for M&As and the hefty due diligence required to support the valuation. Then, you just require our excelled team of My Valuation to support your valuation process and make complex M&A transaction deals seamless.

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