The market for mergers and acquisitions (M&A) is a significant element of many public firms growth strategies. Large public firms that have surplus cash frequently look for opportunities to buy other companies in order to achieve organic growth. For the most part, M&A involves two companies that are in the same field and at the same level of the supply chain, coming together to produce additional value.

In general, a company could purchase another for cash, stock, or debt. The investment bank that is involved in the sale will sometimes provide financing to the acquiring firm as well (known by the term staple financing).

M&A typically begins with a thorough assessment of the target company, including financial reports as well as business and management plans, as well as other pertinent information. The process, also known as valuation, is performed by the acquiring company or consultants. Typically, the business performing valuation has to consider more than only financial data, such as cultural fit and other factors that will impact success of the deal.

Growth is the most popular reason for a merger or acquisition. The size of the business increases its bargaining power, and it reduces costs. Another reason for diversification is that it helps a business to weather downturns in the market or to generate more stable revenue. Lastly, some companies acquire competitors to solidify their position in the market and eliminate future threats. This is referred to as defensive M&A.

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