Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19
Central Banks’ Gold Buying and Repatriation Spree - 28th Nov 19
Another Precious Metals’ Reversal Coming Right Up! - 28th Nov 19
Stock Market 100% Measured Moves May Signal A Top - 28th Nov 19
Don’t Look for Investing Advice in the Media - 28th Nov 19
Why You Should Buy Trailer Park Stocks - 28th Nov 19
Will YouGov General Election Forecast 2019 be as Wrong as their REAL Forecast was for 2017? - 28th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

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

6 Critical Money Making Rules