An M&A (mergers and acquisitions) deal is when a company buys another company for the purpose of strengthening its position in the market, offering additional products or services, reducing manufacturing or processing costs, or other economic benefits.

But how will M&A deals impact the global economy? Let’s find out!

Types of M&A deals

There are two primary types of mergers: horizontal mergers and vertical mergers.

In a horizontal merger, a company may seek to acquire one of its direct competitors. Here’s how this can be beneficial:

  • Reduced competition  
  • Increased diversification of products and services 
  • Optimized economies of scale (increased capital, higher production with lower product costs, etc.)

A vertical merger, on the other hand, is when a company acquires another company in a different production stage. For example, a mobile phone manufacturer that outsources LED screens from a different supplier may decide to acquire the supplier, enabling it to reduce its production costs and maximize efficiency.

To find out more information about mergers and acquisitions, their types, structure, and the main development trends, head over to..

How do M&A deals affect the global economy?

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Generally speaking, M&As are good for the economy. They enable better products and services for consumers. M&As also pave the way for efficiencies.

However, this may not always be the case. Each M&A deal can either affect the economy in a positive or negative way. Usually, the deal is beneficial for both companies, but from a consumer point of view, things are different.

For instance, if an M&A deal causes prices of specific products or services to increase, that’s an indicator that it’s not good for the economy or the consumer.

An M&A deal can also enhance a company’s distribution capacities, giving it the opportunity to expand geographically into new countries or even continents. Companies also enjoy sharing their financial resources pool, which can help the new company reach more customers with a wider product variety. 

The other side of it

Despite having numerous potential benefits for the companies involved, M&A deals may have a negative impact on the economy. If only a few companies dominate a particular industry, the barrier to entry for entrepreneurs into the market will be tough. Such market dominance gives more power and control to the big players.

It’s also worth noting that M&A deals may lead to job losses. For example, if two functional departments have the same duties in the two companies, the new company may simply decide that one department is enough, resulting in layoffs. An M&A deal may also mean that the services of certain departments or employees are no longer needed in the company’s future roadmap.  

The role of the government

Sometimes, governments may intervene in certain M&A deals if the economic analysis yields unfavorable results that could damage the economy. For example, if two direct competitors are about to merge, the government may oppose the deal, as this can harm the consumer.

However, governments only challenge about 3% of M&A deals, so, most of the time, these deals can actually be good for the economy.  

How are M&A deals conducted?

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Traditionally, M&A deals were conducted in physical data rooms to maintain document security and confidentiality. Since an M&A deal involves sharing sensitive documents required for due diligence and other transactions, concerns about security questioned the effectiveness of physical data rooms. Not to mention, company representatives from both had to travel to a single location, which wasn’t the most efficient way to do things.

In recent years, more and more companies started utilizing virtual data rooms (VDRs) offered by virtual data room providers. A virtual data room provides a safe, cloud-based environment where companies are able to exchange information securely, remotely, and efficiently. In addition, access permissions for documents can be adjusted on a granular level, and any data room software will have a minimum level of encryption that safeguards against data breaches.

Moreover, electronic data room software makes organizing and sorting files a breeze. Many online data room software providers also incorporate watermarking for copyright protection.

Some of the best data room providers include iDeals, Firmex, Intralinks, and Brainloop. You might also want to check out a data room comparison to find out how different data room services stack up. 

Conclusion on M&A

To recap, mergers and acquisitions will definitely impact the economy. Whether that impact will be positive or negative is debatable.

Some economists claim that M&As eliminate competition and may even lead to monopolies, while others believe that M&As provide more value and product variety for the consumer.

M&As can give a company access to new technologies and top talent, as well as facilitate expansion into new markets in the global economy. 

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