Trend of corporate mergers and acquisitions

During the last decade mergers and acquisitions (M&A) have acquired popularity and mostly big corporations are merging. The trend is not restricted to a particular industry and form 1994 to 1999 the value of total deal in the USA had progressed form $ 227 bn to $ 1.426 tn in the year 2000 and to nearly $ 1.800 tn after the year 2000.
There are pre-and post-sanction aspects of corporate mergers and acquisitions. In the pre-sanction stage all the procedures and formalities for obtaining the sanction from government are observed and followed.

The post-sanction aspects of mergers starts with the fulfilment of legal obligations, re-grouping of different departments for establishing better operational control, re-organisation of financial structure, toning up production and marketing departments, rationalising financial resources, installation of top management, consolidation of operations, fulfilment of legal obligation etc.
Definition: M&As are separate terms although used collectively. It is a form of corporate re-structuring. "Merger" is a union of two or more firms where one or both may lose their original identity. It is an all-inclusive concept referring to business combination to form a single new entity.

"Merger" is basically of two types: "horizontal and "vertical". Horizontal merger involves union of two firms in the identical type of business (merger of two spinning mills, mergers of two pharmaceutical firms making two identical products etc).
Vertical merger involves union of two firms engaged in different stage of production process (merger of textile spinning company with a textile weaving unit or merger of an oil refining company with an oil marketing company).
"Merger" is a combination of two or more companies into single entity whereby: the survivor retains the identity and legal status (if any); survivor acquires the assets and liabilities of the other identity; and the other entity lose their corporate and legal entity (if any).

An "acquisition" (absorption and take-over) involves the purchase of an entity by another. No new entity is formed and the entity continues to operate under the direction and control of the acquirer. "Acquisition" may be affected by: an agreement with the shareholders holding majority interest in the acquire company's management; purchase of shares form open market; make/take-over offer to the general body of shareholders of the company going to be acquired; purchase of new shares through private treaty; and by acquisition of share capital of one company by issue of shares in cash, issue of loan capital etc.
MBO: Management buyout (MBO) is a form of corporate disinvestment which is very popular in UK, the USA and the European countries. Shareholders offer their equity to the senior management executive or employees management group to pass on the management to the company employees.

Senior management executives or employees finance the share purchase from their provident fund or other benefits or pay in cash or a combination of benefit(s) and cash. Such type of taker over are generally called "employees stock ownership plan" (ESOP) which provide opportunity to employees to acquire ownership of a company. Employees can also arrange funds from the market. The example of ESOP in Pakistan is the Allied Bank, the Millat Tractor; the Exxon Chemical etc.
Downside: A recent survey has concluded that only 45 % of the merged companies have over taken other companies in the relevant industry which reflects the dark side of mergers. It further means that 55 % of the merged companies did not perform well. The latest survey of the KPMG discloses that two third of M&As' had failed to achieve their stated goals.