Mergers and acquisitions in investment projects

Nov, 05 2020

Investment activity is the investment of capital and other practical actions aimed at making a profit or other economically favorable effects. This is how investment is defined by Russian legislation.

The main legislative act regulating this sphere is the Federal law on investment activity, as well as on foreign investment. However, there are many other laws and regulations that affect this area. Therefore, investment projects are supported by a team of lawyers.

Investment activities can be carried out within the framework of a project, which is a well-thought-out action plan related to the investment of financial or other material resources in a certain area of activity for subsequent profit.

In the modern world, it often happens that one or another company wants to expand the scope of its activities and therefore decides to connect with another company, pursuing, for example, the goal of optimizing profits. In this case, we can safely say that the company carries out investment activities related to the purchase of control over companies already operating on the market or the purchase of already functioning property complexes.

Features of M&A transactions

In this case, the implementation of investment activities will consist of the direct conclusion of a merger and acquisition transaction in the investment project. In a broad sense, the term mergers and acquisitions refer to several civil and corporate processes, the purpose of which is to combine one company with another or several enterprises into a single entity. As a result, commercial enterprises are reorganized, and their capital is merged.

The conclusion of a merger and acquisition transaction within the framework of an investment project is usually a type of direct investment, since it involves investing in the authorized capital of another company in order to establish direct control and management of the investment object. Direct investment and, as a result, mergers and acquisitions in investment projects are aimed at expanding the scope of activities, ensuring future financial interests and generating income.

How M&A deals are made

The conclusion of a merger and acquisition transaction is preceded by several procedures, compliance with which is a priority. The list of such procedures includes:

  • conducting negotiations and approving an M&A transaction;
  • legal and financial due diligence;
  • preparation of an agreement of intent for the transaction.

In addition, when drawing up an investment project, it is necessary to justify the economic feasibility of its implementation, assess the volume and timing of investment, develop project documentation in accordance with the legislation of the relevant state, and describe practical actions for investment implementation, the so-called business plan.

All these actions are necessary at the initial stage, so that potential investors, and in our case, they are professional market participants-companies, can assess whether they should implement an investment project at all. If there is a positive response, you can proceed directly to the preliminary procedures related to the conclusion of the M&A transaction.

Advantages of mergers and acquisitions for investors

So, at the end of the consideration of mergers and acquisitions in investment projects, we can highlight several their advantages. As a result of this transaction, the company increases its own competitiveness, improves production and technological indicators.

Also, among the advantages, it is worth mentioning the expansion of areas of activity, the possibility of entering new markets. However, entering new markets is also associated with risks. However, the main advantage for which M&A operations are carried out is to increase profitability and increase profits.

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