The Main Choice Of Financial Means In Mergers And Acquisitions

When a takeover enterprise decides to launch a M & a war against the target enterprise (target) in the market, it first has to face two basic problems: one is the payment problem; the two is the financing problem.

The issue of payment refers to what resources the acquisition enterprise should use to obtain the control rights of the target enterprise. The financing problem refers to what kind of financial instruments the acquisition enterprise should use to raise the resources needed to implement the merger and acquisition.

The main consideration in mergers and acquisitions is the acquisition of resources or financial instruments for M & A targets, mainly in the following ways: 1. the cash payment method refers to the acquisition of enterprises through cash payment to obtain the target enterprise assets or control rights.

The way of cash payment requires a large number of cash collected by the acquiring company to pay for the takeover behavior, which will bring huge financial pressure to the acquiring enterprises.

2. the mode of payment by means of securities payment refers to the acquisition process of acquiring a new stock (stock or bond) in exchange for the target enterprise (asset or stock).

There are two forms in the following forms: (1) the way of stock payment.

Under the mode of stock payment, the acquiring enterprise buys the assets or shares of the target enterprise by issuing new shares, and the most common form is stock exchange.

Stock exchange refers to the acquisition of new shares by enterprises in exchange for the target enterprise stock.

(2) bond payment.

In the form of bond payment, the acquiring enterprise obtains the assets or shares of the target enterprise by issuing bonds; such bonds used for the payment of M & a must have considerable liquidity and certain credit rating.

3. 1everaged buyout (LBO) leveraged buyout refers to the acquisition of assets or shares of a target company by a small number of investors through liabilities.

There is a notable difference between leveraged buyout and the debt payment method mentioned earlier, that is, leveraged buyouts are known as high debt rates.

A special case of leveraged buyout is management buyout (MBO): the business administration leverages the stock of the company.

The way of financing involves financial instruments to raise M & a resources: it has two main channels: internal financing and external financing (extemal financing).

1. internal financing

It refers to the acquisition and payment by retained earnings, which is mainly paid by cash.

2. external financing external financing refers to the acquisition of enterprises through external channels to raise funds for mergers and acquisitions.

External financing includes debt financing (debt financing) and equity financing (equity financing).

(1) debt financing.

Debt financing refers to the acquisition of issue debt funds needed to raise mergers and acquisitions, which corresponds to the way of bond payment and leveraged buyout.

(2) equity financing.

Equity financing refers to the acquisition of equity (issue) securities, such as stocks, to raise funds for mergers and acquisitions, which corresponds to the mode of payment or exchange of shares.