The phrase mergers and acquisitions (M&A) refers
to the aspect of business strategy and management dealing with the
merging and/or acquiring of different companies.
Usually these occur in a friendly setting where officers in each
company involved come together to go through a due diligence process
to ensure a successful marriage between all the parties involved.
On other occasions, acquisitions can happen through hostile takeover
via absorbing the majority of outstanding shares in the open stock
market. Depending on business laws in each state, some companies
have limited protection against hostile takeover.
Various methods of financing an M&A deal exist:
- A stock swap involves issuing stock to exchange
for the shares of the other company.
- A cash deal involves buying a target company
- In some cases, a company may acquire another company by issuing
bonds to raise funds.
No effective marketplace currently exists for the mergers and
acquisitions of privately-owned small to mid-sized companies. Market
participants often wish to maintain a level of secrecy about their
efforts to buy or sell such companies. Their concern for secrecy
usually arises from the possible negative reactions a company's
employees, bankers, suppliers, customers and others might have if
the effort or interest to seek a transaction were to become known.
This need for secrecy has thus far thwarted the emergence of a public
forum or marketplace to serve as a clearinghouse for this large
volume of business.
At present, the process by which a company is bought or sold can
prove difficult, slow, and expensive. A transaction typically requires
six to nine months and involves many steps. Locating parties with
whom to conduct a transaction forms one step in the overall process
and perhaps the most difficult one. Qualified and interested buyers
of multimillion dollar corporations are hard to find. Even more
difficulties attend bringing a number of potential buyers forward
simultaneously during negotiations. Potential acquirers in industry
simply cannot effectively "monitor" the economy at large for acquisition
opportunities even though some may fit well within their company's
operations or plans.
An industry of professional "middlemen" (known variously as intermediaries,
business brokers, and investment bankers) exists to facilitate M&A
transactions. These professionals do not provide their services
cheaply and generally resort to previously-established personal
contacts, direct-calling campaigns, and placing advertisements in
various media. In servicing their clients they attempt to create
a one-time market for a one-time transaction. Many but not all transactions
use intermediaries on one or both sides. Despite best intentions,
intermediaries can operate inefficiently because of the slow and
limiting nature of having to rely heavily on telephone communications.
Many phone calls fail to contact with the intended party. Busy executives
tend to be impatient when dealing with sales calls concerning opportunities
in which they have no interest. These marketing problems typify
any private negotiated markets.
The market inefficiencies can prove detrimental for this important
sector of the economy. Beyond the intermediaries' high fees, the
current process for mergers and acquisitions has the effect of causing
private companies to sell at a significant discount relative to
what the same company might sell for were it publicly owned and
traded on a functioning exchange. An important and large sector
of the entire economy is held back by the difficulty in conducting
corporate M&A (and also in raising equity or debt capital). Furthermore,
it is likely that since privately-held companies are so difficult
to sell they are not sold as often as they might or should be.
Previous attempts to streamline the M&A process through computers
have failed to succeed on a large scale because they have provided
mere "bulletin boards" - static information that advertises one
firm's opportunities. Users must still seek other sources for opportunities
just as if the bulletin board were not electronic. A "multiple listings
service" concept has not been applicable to M&A due to the need
for confidentiality. Consequently, there is a need for a method
and apparatus for efficiently executing M&A transactions without
compromising the confidentiality of parties involved and without
the unauthorized release of information.