Mergers and Acquisitions

Mergers and acquisitions (M&A) are transactions that transfer corporate ownership and management control, and are a key means of corporate growth and restructuring.

Mergers and Acquisitions

Overview

Mergers and Acquisitions (M&A) is a collective term for transactions in which two or more companies combine into one, or one company acquires control of another. An acquisition refers to a company securing management control by purchasing another company's shares or assets, whereas a merger refers to two or more companies being legally integrated into a single company. M&A is an external growth strategy for companies, in contrast to internal (organic) growth, and is used for various purposes such as strengthening market dominance, creating synergies, and restructuring business operations.

Main Content

Types of M&A

M&A can be classified into diverse types depending on the method and relationship of combination. By legal form, it is divided into an absorption merger (one company survives by absorbing another) and a consolidation (two companies cease to exist and a new company is established). By economic relationship, it is classified as a horizontal combination (combination between firms in the same industry), a vertical combination (combination between firms within a value chain from raw material supply to distribution), and a conglomerate combination (combination between unrelated industries). In addition, depending on the party initiating the transaction, M&A is divided into friendly M&A and hostile M&A; hostile M&A seeks to obtain control over the target company, despite opposition from its management, through means such as tender offers or proxy contests.

Process of M&A

A typical M&A proceeds broadly through the following stages: ▲strategy formulation ▲target company discovery and due diligence ▲valuation and transaction structure design ▲negotiation and contract signing ▲approvals and closing ▲post-merger integration. During the due diligence stage, risks in fields such as finance, legal, tax, labor, and environment are examined. Corporate value is generally assessed using methods such as discounted cash flow (DCF), market comparison, and asset-based valuation. The transaction structure is designed as a share purchase, asset transfer, or merger agreement, and must be reviewed by competition authorities, such as the Korea Fair Trade Commission (KFTC) in South Korea or the Federal Trade Commission (FTC) in the United States. Finally, the companies are integrated after shareholder meeting approval and court registration procedures.

Motivations for M&A

The motives for pursuing M&A are diverse. The most representative is the synergy effect, in which increased revenue (horizontal synergy) or cost reduction (economies of scale) can be expected. There is also a significant motive to circumvent market entry barriers and quickly secure new technologies and talent. In some cases, non-core business units are divested to improve management efficiency, or financial investors (FIs) acquire undervalued companies, restructure them, and resell them at a profit. There is also criticism that inefficient M&A can occur due to managerial overreach in pursuit of empire building or due to agency problems.

Effects and Problems of M&A

Successful M&A brings positive effects such as increasing corporate value and rationalizing industrial structure. On the other hand, many cases fail; excessive acquisition prices can increase financial burden, or clashes between organizational cultures can lead to integration failure. In addition, problems such as job losses, disruption of local communities, and a decline in consumer welfare due to increased market concentration can arise. Accordingly, governments protect competition through monopoly regulation and safeguard the rights of stakeholders through procedures under labor law and corporate law.

Recent Trends

From 2024 to 2025, the global M&A market has shown a recovery despite high interest rates and geopolitical uncertainty. Strategic M&A is especially active in advanced industries such as AI, semiconductors, and biotechnology. For example, after Microsoft completed its acquisition of Activision Blizzard in 2024, the restructuring of the game industry accelerated. Big tech companies are also actively acquiring generative AI startups, while traditional pharmaceutical companies are aggressively investing in acquiring biotech firms to secure new drug pipelines. In South Korea, due to the corporate value-up program since late 2024, M&A for divesting non-core assets and converting to holding company structures has increased. Automation of due diligence and valuation using artificial intelligence technology, as well as incorporating ESG factors into acquisition decisions, are emerging as new trends. In addition, foreign investment screening has been strengthened from a national security perspective, so regulatory risk is growing for cross-border M&A in strategic industries such as semiconductors, batteries, and defense.