Mergers and Acquisitions is a phrase used to describe a host of financial activities in which companies are bought and sold. In an acquisition, a party buys another by acquiring all of its assets. The acquired entity ceases to exist as a corporate body, but the buyer sometimes retains the name of the acquired company, may use it as its own name. In a merger, a new entity is created from the assets of two companies and new stock is issued. Mergers are more common when the parties have similar size and power. Sometimes acquisitions are labeled “mergers” because “being acquired” carries a negative connotation; a merger suggests the mutuality. Mergers and Acquistion activites involve both privately held and publicly traded companies; acquisitions may be friendly (both entities are willing) or may be hostile (the buyer is opposed by the management of the acquisition target).
Mergers may result in a stronger company with combined assets, competencies, and markets. At the same time, mergers may result in a dilution of the financial strengths of one of the companies, particularly if the new company results in the issuance of more stock across the same asset base of the two merged companies. Finally, mergers often fail because of the clash of corporate cultures between the two companies, a reluctance to restructure redundant management and operations, incompatibilities of the technologies used by the companies, and disruptions in the workforce. Because mergers are difficult to implement, most ultimately take the form of an acquisition, that is, the purchase of a weaker company by a stronger company.
An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies remains independently. Acquisitions are divided into “private” and “public” acquisitions, depending on whether the acquiree or merging company is or is not listed on a public stock market. An additional dimension or categorization consists of whether an acquisition is friendly or hostile.
Rink & Robinson, PLLC provides services to assist businesses with Merger & Acquisitions.
The documentation of a merger or acquisition often begins with a letter of intent. The letter of intent generally does not bind the parties to commit to a transaction, but may bind the parties to confidentiality and exclusivity obligations so that the transaction can be considered through a due diligence process involving lawyers, accountants, tax advisors, and other professionals, as well as business people from both sides.