M&A is the umbrella term for mergers and acquisitions: ways of gaining management control of a company or combining several companies into one.
M&A (mergers and acquisitions)
Merger: several companies become one
Absorption merger: one survives and takes in the other
Consolidation: a new company is formed and all move into it
Acquisition: gaining control, e.g. by buying shares
A merger means several companies legally become one, while an acquisition means gaining management control of the target, for example by buying its shares. An acquired company often stays a separate company as a subsidiary. The advantage is speed: sales channels, technology and talent can be obtained sooner than by building them from scratch.
AnalogyLike folding separate shops into one, or buying another shop outright, to make your own business much stronger in one move.
Exam points
ExamWhat separates M&A from a tie-up or alliance (提携, アライアンス) is whether management control of the target is acquired. The party that gains control can decide for itself how the target's resources are used.
Mix-upIn a joint venture (ジョイントベンチャ), several companies jointly fund a new company and each investor stays independent. That form differs from M&A, where management control is acquired.
An MBO (Management Buyout) is a buyout in which a company's management buys most of its shares and takes control of the company themselves.
What sets it apart is that the buyer is not an outside company but the people already running the business. It is used to gain independence from a parent company, or to delist so the business can be run without chasing short-term share prices. Management's own money is often not enough, so funds may be raised from banks or investment funds.
AnalogyLike a hired store manager buying the shop from the owner and carrying on running it as their own.
How to rememberBuyout means buying something outright. The leading M is the buyer's name tag: Management.
Exam points
ExamIn an MBO, the buyer is the company's own management (経営陣). After the buyout, the people who own the company and the people who run it are the same.
Mix-upWhen employees rather than management are the buyers, it is called an EBO (Employee Buyout). Both are insiders buying their own company, and the name depends on who the buyer is.
A TOB (Take-Over Bid, 株式公開買付け) is a way of buying shares in which the buyer first publicly announces the number of shares, the price, the period and other terms, then buys off-market, outside the stock exchange, from shareholders who accept.
Announce terms
Shareholders tender
Off-market purchase
Gain control / take a stake
Once enough shares are collected, the buyer can take control of the target or form a capital tie with it.
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The "public" (公開) in the Japanese name 株式公開買付け refers to announcing the terms, while the trades themselves take place outside the stock exchange. The offer price is usually set above the market price, and each shareholder decides whether to accept.
AnalogyLike posting a notice that says "We buy this item at this price until this date" and buying directly from anyone who brings one in.
How to rememberTake-Over means taking control, and Bid means an offered price. You name your price first and step forward in the open.
Exam points
ExamA TOB aims to take control of the target company, or to invest in it and form a capital tie. Sellers are not limited to particular parties; the offer is open to shareholders at large.
ExamListing previously unlisted shares on an exchange for the first time to raise money is an IPO, an act by the side selling shares. A TOB is an act by the side buying up shares that shareholders already hold.
Mix-upMBO names who the buyer is, while TOB names how the shares are bought. Management may also buy up its own company's shares through a TOB to carry out an MBO.
Vertical integration (垂直統合) means bringing the upstream or downstream stages next to your company, in the trade flow from raw materials to the consumer, into your own group.
Raw materials / parts (upstream)
Manufacturing
Wholesale / logistics
Retail (downstream)
Consumers
Upstream is the side closer to raw materials and parts; downstream is the side closer to sales and consumers. Owning the adjacent stages makes it easier to secure supplies, cut out middlemen's margins and keep quality consistent. On the other hand, carrying the extra plants and staff makes it harder to switch partners when demand or technology changes.
AnalogyLike a flour mill that owns both the farm growing its wheat and the bakery selling bread made from its flour. The front end makes the raw material, the back end sells to consumers, and both are stages different from its own.
How to rememberVertical means up and down. Picture trade flowing down a river from upstream to downstream, and stretch your reach up and down that line.
Exam points
ExamVertical integration (垂直統合) is defined by where the absorbed party sits. For example, a parts maker buying a finished-goods maker integrates downstream, while a finished-goods maker making a raw-material producer its subsidiary integrates upstream.
Mix-upAbsorbing a competitor at the same stage to grow in scale is horizontal integration (水平統合). It differs from vertical integration in whether the absorbed party sits before or after you in the trade flow, or at the same stage.
Mix-upA fabless company (ファブレス) owns no factories and outsources production, which runs opposite to vertical integration, where adjacent stages are brought in-house.