Mergers and acquisitions are common business strategies that companies use to expand their operations, gain access to new markets, and achieve other strategic goals. While the terms “merger” and “acquisition” are often used interchangeably, they actually refer to distinct types of transactions.
In this article, we’ll explore the differences between mergers and acquisitions and discuss some of the key considerations that business owners or CEOs should keep in mind when pursuing these types of transactions.
What is a merger?
A merger is a type of business combination in which two companies combine to form a new entity. In a merger, both companies typically contribute assets, liabilities, and equity to the new business entity. The new entity may have a new name, brand, and a new management team, but it is typically seen as a continuation of the two companies that merged. The goal of a merger is often to create a more powerful, efficient, and competitive entity that is better positioned to succeed in the marketplace.
What is an acquisition?
An acquisition, on the other hand, is a type of business combination in which one company acquires another company. In an acquisition, the acquiring company (also known as the “buyer”) purchases the assets and/or equity of the target company (also known as the “seller”). The target company may continue to operate as a subsidiary of the acquiring company, or it may have been merged into the acquiring company’s operations. The goal of an acquisition is often to gain access to new markets, products, or technologies, or to eliminate a competitor from the marketplace.
What are the key differences?
While mergers and acquisitions can both achieve similar strategic goals, they differ in a few key ways:
Legal structure: Mergers involve the creation of a new legal entity, while acquisitions do not. In a merger, the two companies combine to form a new entity, while in an acquisition, the acquiring company simply purchases the assets and/or equity of the target company.
Control: In a merger, both companies typically have equal control over the new entity. In an acquisition, the acquiring company gains control over the target company’s assets, operations, and management.
Payment: In a merger, the two companies typically exchange equity in the new entity. In an acquisition, the acquiring company typically pays cash or stock to the target company’s shareholders.
Integration: Mergers usually involve more integration of the two companies, as they are combining to form a new entity. Acquisitions can involve less integration, particularly if the target company continues to operate as a subsidiary of the acquiring company.
Considerations for business owners or CEOs
If you’re considering pursuing a merger or acquisition, there are several key considerations to keep in mind:
Strategic goals: What are your company’s strategic goals, and how can a merger or acquisition help you achieve them?
Due diligence: Before pursuing a merger or acquisition, it’s important to conduct thorough due diligence to ensure that the target company is a good fit for your business and that there are no hidden risks or liabilities.
Legal and financial considerations: Mergers and acquisitions can be complex legal and financial transactions, so it’s important to work with experienced legal and financial advisors who can guide you through the process.
Mergers and acquisitions are powerful tools that can help businesses achieve their strategic goals, but they are not interchangeable terms. Understanding the differences between mergers and acquisitions, as well as the key considerations for pursuing each type of transaction, can help business owners and CEOs make informed decisions and achieve success in the marketplace. For more information on how we could help your business during a merger or acquisition, read our related article: https://hutchinsonthomas.com/proud-to-support-lcv-group-on-the-acquisition-of-tr-fleet/
At Hutchinson Thomas, we have a vastly experienced team, covering a wide variety of specialist areas. If you would like to talk to a solicitor, or just want to find out more, get in touch with us today: 01792 439000 or https://hutchinsonthomas.com/contact-us/