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Private Equity: History, Governance, and Operations, Second Edition by ADAM A. WADECKI, JAMES P. MARTIN, LOUIS W. PETRO, HARRY CENDROWSKI

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Chapter 6

Harvesting Investments Through Mergers and Acquisitions

Harry Cendrowski

James P. Martin

Introduction

Mergers and acquisitions (M&As) have become an increasingly popular exit vehicle for PE-backed investments. This chapter examines the basics of M&A deals, including types of M&A deals, the sale process, and historical M&A data.

M&A Basics

Although the term “M&A” is a common one in business, there exist numerous differences between mergers and acquisitions. On a simple level, a merger is a transaction in which multiple parties negotiate the amount of ownership each will hold in a combined firm; by contrast, in an acquisition, an acquiring firm will negotiate with a target firm over a purchase price for the target. For simplicity, we will sometimes refer to a merger or acquisition as a takeover.

When practitioners or academics discuss mergers, they are typically referring to a forward merger, or a transaction in which the target firm obtains an equity stake in the acquiring firm or cash in exchange for merging with the acquirer. By contrast, in a reverse merger, an acquirer merges into the target company and receives an equity stake in the target. Stock acquisitions are transactions where the acquirer purchases the common stock of the target firm for a negotiated price.

There also exist some descriptive terms that describe the purpose—rather than structure of—an M&A deal. For instance, horizontal takeovers take place when two companies in a similar industry merge/are acquired, ...

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