Introduction Instances of businesses purchasing their competitors or coming together to be more competitive are common occurrences in the business sector. Microsoft’s $45 billion proposed acquisition of Yahoo is one of the largest of such transactions. This venture offers a 62% t premium to present trading value for Yahoo. In the case of mergers, two or more firms join and come up with a new firm. In the case of acquisition, one firm buys another or other companies. Both mergers and acquisitions lead to a restructuring of the company’s administrations and operations. Merges and acquisitions are very strategic transitions for companies to enhance their performances and competitions. Although, initially it may negatively affect the new institution, in the long term it’s very profitable. Cash and Securities as payment modes When firms bid for acquisitions of others, they may choose to use cash or securities to settle transactional costs involved in the event a deal is reached. Usage of cash; a more prompt form of payment, is a preference to bidders who want to resolve any uncertainty about the transaction and maybe to gain potential investors confidence or to portray the bidder’s seriousness on the offer (Bruner 535). This could though be interpreted as a lack of confidence by target shareholders in the buyer’s future management of the enterprise if left in their hands and hence a call to the certainty of change of ownership. Securities such as common and preferential stocks whose values are less certain are also used to pay for acquisitions. The stocks may significantly vary in value upon announcement of the merger hence the form of payment calls for investors ready to participate in the future of the newly formed company. Private Equity Funds Historically, mergers and acquisitions involved the direct purchase of one operating firm by another. In the current takeover market, private equity funds (PEF) have played various important roles in the acquisition activity such as raising large equity capital from investors (Fruhan par. 4). This is easily attainable since PEFs receive deposits from a large pool of investors and control the type of investments the monies are engaged in. They also bid for and acquire operating firms as an investment using the equity capital together with borrowings that may be several times the equity capital they invest. Private equity funds normally change the acquired company’s management incentive scheme to give the management team a share of any shareholder’s wealth they successfully create. The board of directors of the operating firm gets to be dissolved and replaced by general partners of the PEFs who have a stake in the success of the firm. This is mostly to provide ultra motivation for success making the operating companies be managed in a manner as to generate maximum cash flow, before being resold within three to five years for a large capital gain. Employee Stock Ownership Plans Contrary to the common notion that employee stock ownership plans (ESOPs) are normally used for saving troubled companies, only a few of such plans are set up annually. Instead, ESOPs are more frequently used by successful business owners who no longer wish to retain their status in the business as a way