The transaction of Mergers and Acquisitions is always interesting to observe. Who buy who? Whose identity stays, whose is liquidated? What is the benefit of the transaction? Many questions are raised during the investor Mergers and Acquisitions. Let’s discuss if the real purpose is always market or not.
It is true that acquisition may have the purpose to secure a wider market share through obtaining competitor’s market. It is common as well when a bigger company extend their market to a different market segment by acquisition. A premium cosmetic line may want to have a second line with cheaper rate cosmetic market. To sell a cheaper brand with its brand is not good to maintain the current customers. The smart strategy is buying an established cosmetic company which product is in a lower level of price.
The other reason of acquisition could be related to legal reason. A foreign company might have entry restriction for investment. The strategy to have their brand in a country is to buy shares of local company and make a co branding for marketing. If the major shares are not allowed the strategy may change to merger. The option of Mergers and Acquisitions lay in these areas. For a beginner investor, now at least we have been introduced to two reasons for Mergers and Acquisitions. The first reason is the main reason, which is market, and the second is popular for foreign investment since legal restriction is naturally regulated by government.