Explore the world of mergers and acquisitions (M&A), understand the difference between the terms, and delve into examples of the biggest and most successful M&A transactions in history.
Mergers and acquisitions (M&A) is a general term that describes the consolidation of companies or assets through various types of financial transactions.
The terms "mergers" and "acquisitions" are often used interchangeably, but they differ in meaning.
- Acquisition happens when one company takes over another and establishes itself as the new owner
- A merger describes two firms, of approximately the same size, that join forces to move forward as a single new entity, rather than remain separately owned and operated.
Mergers can be structured in a number of different ways, based on the relationship between the two companies involved in the deal:
- Horizontal merger: Two companies that are in direct competition and share the same product lines and markets.
- Vertical merger: A customer and company or a supplier and company. Think of an ice cream maker merging with a cone supplier.
- Congeneric mergers: Two businesses that serve the same consumer base in different ways such as a TV manufacturer and a cable company.
- Market-extension merger: Two companies that sell the same products in different markets.
- Product-extension merger: Two companies selling different but related products in the same market.
- Conglomeration: Two companies that have no common business areas.
Mergers may also be distinguished by following two financing methods, each with its own ramifications for investors.
Examples of the biggest M&As:
1. Vodafone and Mannesmann Acquisition (1999)—$202.8B
As of January 2021, the largest acquisition was the takeover of Mannesmann by Vodafone occurred in,000 and was worth ~$203 billion. Vodafone, a mobile operator based in the United Kingdom, acquired Mannesmann, a German-owned industrial conglomerate company.
This deal made Vodafone the world’s largest mobile operator and set the scene for dozens of mega deals in the mobile telecommunications space in the years that followed. This is the largest mergers and acquisitions transaction in history.
2. AOL and Time Warner Merger (,000)—$182B
When we mentioned at the outset of this article that ‘big doesn’t always mean better’, the famous merger of AOL and Time Warner in,000 is a case in point. In little over two decades, the deal has become cemented as the textbook example of how not to conduct M&A.
It featured everything from overpaying to strong cultural differences and even, with the benefit of hindsight, two large media companies that just weren’t sure where the media landscape was headed.
Examples of Smaller but Really Successful Mergers and Acquisitions
1. Facebook’s and WhatsApp Acquisition (2014)—$22B
Take the example of Facebook’s acquisition of WhatsApp in 2014 for $22B. Although the internet was awash with analysts using the word “overpaid”, time—and the fact that the platform has 70 million users in the US alone—have proven them wrong.
The app also provides the potential for Facebook to bring more businesses onto its advertising program, with thousands of businesses coming onto the platform every day.
2. Salesforce and Slack Acquisition (2021)—$27.7B
Finally, although the deal has just closed, the acquisition of Slack by Salesforce for a reported fee of $27.7B looks to be a winning combination.
The deal is the second biggest of all time for a software company (the largest being IBM’s 2019 acquisition of RedHat) but already looks like it has the potential to generate massive synergies for both companies.
Time will tell, but this one looks like it could be a winner.