Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Acquisitions Affect Global Stocks

Companies / IPOs Jun 14, 2019 - 08:10 AM GMT

By: Submissions

Companies If you love to keep up to date with market news or you enjoy reading financial forums, you can’t have missed the fact that waves of excitement travel through the investment community every time a big acquisition is expected. Suddenly there’s lots of speculation about what will happen to stock prices and what will be the right moment to buy or sell. The international nature of today’s market means that big company purchases have repercussions around the clock, keeping investors on their toes. In this fast-paced environment, it has never been more important to understand how acquisitions affect stock prices and what this means for global market movements.




Acquisitions and pricing: the basics

What happens when one company acquires another? If you’re new to this, one useful way of looking at it is that it’s like buying a house. A house has a certain innate value based on the materials that have gone into its construction, but the bulk of its value is based on what people are willing to pay for it. The bigger the number of people interested in buying it, the more it’s likely to sell for. When a big company makes a bid for a smaller one, interest in the smaller one often increases, and any serious rival interest can cause its stock price to rise significantly. If a proposed acquisition falls through, however, the stock price of the smaller company can fall because of the assumption that it’s not really worth as much as was thought.

Increasingly, acquisitions are made with shares rather than with cash. When this happens, a direct relationship between the share value of each company is established. This applies at the point that the purchase is made, however, it doesn’t preclude changes in share value just before the exchange takes place, and this creates opportunities for traders to make a profit – though doing so entails quite a bit of risk.

Reputation

Along with the way that demand causes value to shift, the reputation of each company can impact the share price of the other. That most commonly occurs when a large company with a reputation for stability and success acquires a smaller one, causing its perceived value to rise just prior to the exchange, but it can also affect the value of the larger company in the aftermath of the exchange if the smaller company is seen as adding significant value to its reputation. This can happen, for instance, if the smaller company has good environmental credentials or is admired for its expertise in an area where the larger one is seen as lacking. The flip side of this is that customers can sometimes desert a smaller company because they don’t feel that the company acquiring it shares the values that are important to them.

Global reach

An acquisition can also add to the perceived value of the larger company – even before the exchange has taken place – if it indicates that the company is expanding into potentially lucrative new geographical areas. For instance, the recent purchase of AETOS Capital Bank Pty Ltd enhanced the MultiBank Group global presence by enabling it to expand into mainland China, making a positive impression on investors and, by increasing the opportunities available to its clients, promising to improve its long-term prospects. Investors need to be aware, however, that companies sometimes overreach themselves in making overseas acquisitions, and that there’s a higher risk of them being missold, so when the company being purchased is less well known it’s worth doing your own research.

The changing shape of the markets

Over the last few years, the UK has seen an increase in the number of companies registered here as people facing unemployment have chosen to create work for themselves. Around the world, however, the picture is different. The number of companies registered in the US, for instance, has dropped considerably over the same period. As a whole, there’s a shift towards larger companies acquiring smaller ones and incorporating them into larger structures.

In addition to the above, the ease with which investors can now access the global marketplace means that the reputation of particular regions has become a shortcut in assessing the value of companies. This means that when a company acquires another in an area associated with strong growth (such as Botswana or Chile) or with expertise in a particular field (such German engineering), it can gain value as a result. Increasingly, large companies are seeking to spread out across as many strong economies as possible in order to improve their trading options and limit their risk.

Ultimately, learning how acquisitions impact the global marketplace is best done through observation. This will help you to hone your instincts for how a particular purchase will develop, so that you know when and what shares to acquire for yourself.

By Lee Ralph

This is a paid advertorial.

© 2019 Copyright Lee Ralph - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in