The Indian economy is rapidly advancing across sectors like IT, infrastructure, energy, retail, telecom, financial services, media, and hospitality. It stands among the fastest-growing economies globally. Major corporations and industrial giants view the Indian market as one of growth and expansion, offering high returns on investment and shareholder profits. Both inbound and outbound mergers and acquisitions have notably increased.

Mergers and acquisitions (M&A) involve the consolidation of two or more companies into a single entity, where the merging entities lose their individual identities. No fresh investment occurs during this process; rather, shares are exchanged between the involved entities. Usually, the surviving company becomes the buyer, maintaining its identity, while the selling company is absorbed.

M&A activities are integral to the business landscape today. In the dynamic economic environment, companies frequently confront decisions about these actions, aiming to enhance shareholder value. Through mergers and acquisitions, companies seek a competitive edge and ultimately increase shareholder value. While these terms may seem similar to a layperson, in legal and corporate contexts, they possess distinctive differences.

Merger:

A merger is the joining of two separate entities, where both dissolve to form a new one using their assets and liabilities.

Acquisition:

Acquiring ownership and control of another business, often referred to as a takeover, can involve buying the company's shares or assets. In a share purchase, the buyer acquires shares from the target company's shareholders. Alternatively, in an asset purchase, the buyer obtains specific assets from the target company, which may or may not include liabilities.

Types of Mergers

In the realm of business associations, mergers come in various forms. However, from an investor's standpoint, mergers are classified based on the relationship between the two merging companies into the following categories:

Horizontal merger:

When two companies operating in the same market and producing similar products combine, it results in a merger of direct competitors. For instance, the merging of Ford and Volvo is a prime example of this type of merger.

Vertical merger:

When a business that purchases goods or services merges with its supplier or customer, it's termed as a vertical merger. For instance, the merger between Ford and Bendix illustrates this kind of relationship-based business integration.

Conglomerate merger:

It's a merger between companies that lack any existing business relationships or common interests.