M&A transactions are a popular method for companies to boost their revenues and income. M&A transactions can also assist companies to gain access to new markets and transfer resources, and reduce risk.

The first step in M&A is to formulate an acquisition strategy that defines the goal of the deal. The buyer should then select target companies. This includes establishing M&A criteria, such as the company’s size, financial position (profit margins) the products they offer and culture.

Once a list of candidates has been compiled the buyer must conduct due diligence. Due diligence is an analysis of the target company which includes its operations as well as financials. Due diligence will take 30-60 days depending on the company. It will involve the creation of financial models, operational analysis, and the evaluation of culture fit.

An M&A transaction can be categorized as a stock sale or asset purchase. A stock sale occurs when the shareholders of the company being targeted sell their shares to buyers. The buyer is then able to select the assets he prefers and leave any liabilities to be left behind. A purchase of assets however typically leaves the target company with nothing but a empty shell. The buyer will only pay for the assets it desires, and the rest of the cash will be remitted to the shareholders.

In a leveraged acquisition, the company that buys the shares is borrowing money. This type of M&A can be considered hostile as it can be executed without the approval of the target’s management and board of directors.

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