what is m&a in finance

Mergers and acquisitions (M&A) refer to the consolidation of companies or their major business assets through financial transactions between companies. In an acquisition, one company purchases another outright, while a merger is the combination of two firms, which subsequently form a new legal entity under the banner of one corporate name. M&A transactions can be divided by type, such as horizontal mergers, which happen between two companies that operate in similar industries that may or may not be direct competitors, and vertical mergers, which take place between a company and its supplier or a customer along its supply chain. The motives for M&A activity include synergy, growth, market power, the acquisition of unique capabilities and resources, diversification, increased earnings, and more. The goal of a merger or acquisition is to create a new entity that is more efficient and effective than the two previous companies were on their own. Mergers and acquisitions deliver financial benefits for the owners of the original companies and the owners of the newly merged entity.