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Agreement In Which One Firm Purchases Another

The merger approach can help clarify some of the uncertainty surrounding the decision as to when a merger might affect competition. For example, if two of the smaller companies merged into the hypothetical motor vehicle window repair market, the concentration rate of four companies would not change, meaning that there is not much more to fear that the level of competition in the market has significantly decreased. However, if the two largest companies merge, the concentration rate of four companies will become 46 (i.e. 26 – 8 – 6 – 6). Although this concentration rate is slightly higher, the concentration rate of four companies would still be less than half, so such a proposed merger could hardly raise an eyebrow among antitrust authorities. On average and beyond the most frequently studied variables, the financial performance of acquiring companies does not change according to their acquisition activity. [18] Other reasons for mergers and acquisitions that may not give shareholder value are: from the fifth wave of mergers (1992-1998) to today, companies are more likely to acquire in the same or close to companies that complement and strengthen the ability of an acquirer to serve their customers. A company is owned by two categories of owners, shareholders and debtors. The value of a pure company entering both categories of owners is called “Enterprise Value” (EV), while the value that goes to shareholders is the value of equity (also known as market capitalization for listed companies).

Businesses are compared to the value of the business instead of the value of equity, as debt and cash levels can vary considerably from one company to another. [11] The five most common ways to determine the value of a business are: for legal purposes, business purchases can be referred to as “asset purchases” in which the seller sells assets to the buyer, or as “equity purchases” in which the buyer acquires stakes in a target company from one or more selling shareholders. Asset purchases are common in technology transactions where the buyer is most interested in certain intellectual property rights, but does not wish to acquire debt or other contractual relationships. [7] An asset purchase structure can also be used when the buyer wishes to purchase a specific department or unit of a company that is not a self-sustaining corporation. There are many challenges, particularly in this type of transaction, including the isolation of specific unit assets and liabilities, the determination of the unit`s use of the services of other entities of the selling company, the transfer of personnel, the transfer of authorizations and licenses and the guarantee that the seller will not compete with the buyer in the same industry in the future. [8] The term “acqui-hire” refers to acquisitions in which the acquirer attempts to acquire the talents of the target company and not their products (often engaged in the acquisition, so that the team can focus on projects for its new employer).

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