When it comes to getting a quick return on our money by investing in a business or company, one moment stands out: when a company is about to merge.
Sometimes a merger is a rescue of a company that cannot stay afloat on its own. Other times, companies simply merge as a strategic market move, to cover more products and a larger market.
When is the best time to invest in a merger?
Without a doubt, the best time to invest would be even before there are any public rumours of a merger. Even so, as a general rule the share price of the company being rescued keeps rising steadily throughout the merger process.
Why does a company’s value rise during a merger?
A company’s share price falls while it is posting losses, driven by investors’ fear of losing the entire value of their shares. If the company was not at risk or losing money, its value has simply stayed stable for years.
Once the merger is announced and the acquiring company is known, any investor knows that, as a rule, a merger brings:
- More products and services.
- A larger market.
- Staff cuts, which in many cases increase profits.
- Two different visions of the market.
- At some companies, the closure and sale of some offices, which increases the company’s available capital.
A company merger would have to be going very badly for us not to be able to buy shares during the process and see a significant price rise in a very short time. Of course, there is also a chance that the merger agreement does not turn out as expected.
Further reading
- Factors behind the success or failure of a merger
- How to be a successful entrepreneur
- The 7 levels of investors
Featured image: Best Picko, CC BY 2.0, via Flickr.
