Company lawLesson 5 of 6 in the course Forms of Business Ownership

Mergers, Acquisitions, and Deal Evaluation

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Mergers and acquisitions are ways companies can change their size, capabilities, and position in a market. Understanding the difference between these transactions—and the different forms a merger can take—helps explain how businesses pursue growth and competitive advantage.

A merger occurs when two or more firms combine to form one new company. For example, Johnson Controls and Tyco International agreed to combine in 2016, bringing together businesses focused on building efficiency, fire safety, and security. AT&T and Time Warner also combined, bringing content and content distribution under one corporate umbrella.

All flashcards

What is a merger?
A merger occurs when two or more firms combine to form one new company.
What is an acquisition?
An acquisition is a transaction in which a corporation or investor group negotiates to purchase a target company.
What distinguishes a horizontal merger?
It combines companies at the same stage in the same industry, often to reduce costs, expand offerings, gain scale, or reduce competition.
How does a vertical merger differ from a horizontal merger?
A vertical merger joins firms at different stages of the same industry, such as a producer and distributor; a horizontal merger joins firms at the same stage.
What is a leveraged buyout?
An LBO is a takeover financed largely with borrowed money. The buyer may seek to improve operations or sell units, but high debt makes repayment a major risk.

Quiz questions

  1. Which statement describes an acquisition?Answer: A buyer purchases a target and gains control of it.
  2. Two companies at the same stage in the same industry combine. What type of merger is this?Answer: A horizontal merger
  3. A company combines with a supplier operating at another stage of its industry. What type of merger is this?Answer: A vertical merger
  4. Two companies in unrelated businesses combine. What type of merger is this?Answer: A conglomerate merger
  5. Why can an excessively high acquisition premium undermine the value of a deal?Answer: It can make the expected gains too small to offset the purchase price.

Based on Introduction to Business 2e by Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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