Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

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.


© 2005-2019 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