Business in Evolution: Building the Corporate Future with M&A

Mergers and acquisitions (M&A) operations emerge as fundamental strategies for business growth and consolidation. These maneuvers not only redefine the structure of companies but also represent a complex dance between risks and rewards.

It is a form of corporate growth resulting from the involvement, partnership, or control of a company or assets from other businesses, expanding their current operations or venturing into new ones.

Reasons to Opt for M&A (Mergers and Acquisitions)

There are two fundamental motives for choosing external development:

• Economic Reasons: synergy and efficiency gains, economies of scale, diversification
• Market Power: competitive advantage, innovation and technology, market share expansion

Economic reasons are linked to cost reduction through the integration of companies with complementary production and economic systems. It can also be motivated to obtain new resources and capabilities by joining or acquiring a company that already possesses what is needed. The replacement of management teams or certain tax incentives may be other causes.

Regarding the gain in market power, it occurs when a country or sector has entry barriers. To overcome these barriers, the merger and acquisition of companies may be the only way to enter that market. In a similar vein, another way to control the market is by acquiring or merging with the competition.

Types of M&A Operations

According to the relationship between the companies involved in the merger or acquisition, we distinguish three main types of integrations:

• Horizontal Integration: Involves companies that are direct competitors and provide services to target customers with a similar business strategy.
• Vertical Integration: Involves companies in the same sector but not coinciding in the stages of the production process of a product.
• Conglomerate Integration: Involves companies with very different business activities.
• Pure Merger: When two companies of similar size come together, they lose their legal identity and create a third newly formed company that consolidates the assets of both.
• Merger by Absorption: The absorbed company relinquishes its legal form and assets, while the absorbing company maintains its legal identity and now owns all the acquired assets of the absorbed company.
• Partial Asset Contribution: When one company transfers part of its assets to another in the context of a merger or acquisition. It is a basic condition that the company contributing part of its assets does not dissolve, as otherwise, it would be considered a merger by absorption.

Successful Cases in M&A Operations

In December 2020, Salesforce, a leading enterprise software solutions company, announced the acquisition of Slack, a team collaboration platform. The transaction, valued at around 27.7 billion dollars, allowed Salesforce to strengthen its position in the enterprise communication market and enhance its cloud services offering.

Although still undergoing regulatory review, the proposed acquisition of Arm Holdings by NVIDIA has garnered considerable attention in the technology sector. NVIDIA, known for its hardware and software solutions in the fields of artificial intelligence and graphics computing, aims to boost its presence in the semiconductor market by acquiring Arm, a leading chip design company.

These cases highlight that M&A operations are key tools for the expansion, diversification, and strategic restructuring of companies, enabling them to adapt to a dynamic business environment and stay at the forefront of innovation and competitiveness.