Mergers and Acquisitions

Mergers and Acquisitions

Combining two businesses and their assets is referred to as mergers and acquisitions. Acquiring a new company with its existing employees, assets, and financial liabilities will require the help of a skilled lawyer. Consolidating two businesses may come with a long list of to-do’s in order for the new entity to move forward. 

The Difference Between Mergers and Acquisitions

When one company takes over another and establishes itself as the new owner, this is known as an acquisition. Whether it is friendly or hostile, acquisitions refer to one company purchasing or “taking over” another. Acquisitions can be voluntary from both parties, but some common acquisitions can be a larger company purchasing a smaller company that is against being acquired. 

Mergers are when two companies join forces to make a stronger entity. Most mergers are done internally (two branches or locations of the same company) but two different companies can also merge. Rather than be separately owned and operated, two firms of similar size come together in a merger of equals. 

The difference between the two is how the deal is negotiated and announced. How the change is communicated to the board of directors and shareholders will determine if the transaction is labeled as a merger or acquisition.

Other Types Of Acquisitions

There are multiple different types of transactions that can be classified under the mergers and acquisitions umbrella. Here are some other structures for acquiring a company. 

Consolidations

Consolidations are used when two companies come together to increase sales and limit competition. By considering consolidation, companies can work together to meet the different needs of their customers without one company taking over the market. One of the most recognizable consolidations is Facebook acquiring other social media companies including Instagram. 

Tender Offers

Tender offers refer to buying the stock of another company. The company will buy the stock of the company at its set price instead of the market price. Tender offers will be communicated directly to the other companies’ shareholders. This will bypass the board of directors and often streamline the acquisition process. 

Acquisition Of Assets

One company will directly obtain the assets of another company Acquisitions of assets are typically done when a company is going through bankruptcy. Others can bid for the remaining assets and they will be liquidated to the new company upon purchase. 

Types Of Mergers

In addition to subtypes of acquisitions, there are also different structures of mergers. Here are the common types and how they will benefit each company. 

• Horizontal: Used for companies that are in direct competition with one another. They will merge because they share similar product lines and customer base. Two companies will combine to help avoid competition and boost sales.
• Vertical: Vertical mergers are between a customer and a company or a supplier and a company. These mergers help combine multiple products into one company so that customers can find all they need in one place. 
• Congeneric: Companies that serve the same customers in two different ways will come together to make a larger impact on the industry. If a company works mostly with in-person customers while the other works with online support, working together can help them better serve more people. 
• Market-Extension: Companies that sell the same product but to different markets. Combining companies will help both teams reach new customers who may have never found them before the merger. 
• Product-Extension: Two companies who sell two different products but can benefit from a similar market can merge in a product-extension merger to better serve their customers.
• Conglomeration: Even companies in two different markets that have nothing in common can merge together. Some companies want to buy a smaller company to improve their interest or sell products to a new group of consumers.