Financial Distress and Mergers and Acquisitions (theory)

Financial distress occurs when a company faces significant financial difficulties, struggling to meet its debt obligations or stay profitable, which may lead to restructuring or bankruptcy. Mergers and acquisitions (M&A) involve one company buying or combining with another to enhance competitiveness, expand market share, or improve efficiency. Theories around M&A explore motives like synergies, increased value, or strategic growth, while distress theory examines how financial pressure can motivate companies to merge or seek rescue options to survive. Together, these concepts help explain corporate restructuring and strategic decisions driven by financial health or the pursuit of competitive advantage.