Thursday, May 17, 2012 6:51:05 AM
Terminology
Merger
A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another.
Synergy
The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones – synergy is the logic behind mergers and acquisitions.
Comparative Ratios
Acquiring companies use various methods to value their targets. Some of these methods are based on comparative ratios – such as the P/E and P/S ratios – replacement cost or discounted cash flow analysis.
An M&A deal can be executed by means of a cash transaction, stock-for-stock transaction or a combination of both. A transaction struck with stock is not taxable.
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