Mergers and acquisitions

Usually these are done in a friendly setting where officiers in each company involved come together to go through a due diligence process to ensure a successful marriage between all the parties involved.

In other occasions, acquisitions can be done by hostile takeover via absorbing the majority of outstanding shares in the open stock market. Depending on business laws in each states, some companies have limited protections against hostile takeover. See Delaware corporations.

The deal can be paid for in two ways. A stock swap involves in issuing stock to exchange for the shares of the company. A cash deal involves buying the company with cash. In some cases, company acquires another company by issuing junk bonds to raise funds.

M&A marketplace difficulties

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 is difficult, slow, and expensive. A transaction typically requires six to nine months and involves many steps. Locating parties with whom to conduct a transaction is one step in the overall process and is perhaps the most difficult one. Qualified and interested buyers of multimillion dollar corporations are hard to find. It is even more difficult to bring a number of them forward simultaneously during negotiations. Potential acquirers in industry simply are not able to 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 are expensive 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 are inefficient 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 are typical of any private negotiated markets.

The effects of the market inefficiencies on this important sector of the economy are detrimental. Beyond the intermediary's 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 been 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.