You may know vaguely the definition of mergers and acquisitions, but we would like to delve deeper.
What is a merger?
A merger is defined as the combination of two or more companies into a larger company. Often companies will utilize mergers for the purpose of expanding their operations in order to maintain long term profitability. Mergers are generally a voluntarily action, or through mutual consent involving cash or stock payments exchanged with the target company. Stock exchanges allow both parties to have an equal share in the financial outcomes of the merger. Sometimes a merger can form a new business venture with a combined name and logo. The process of a merger can be often be complicated and overwhelming for both sides, but George and Company works hard to ensure an easy transition for both parties. We require all of our clients to sign a confidentiality form.
What is an acquisition?
An acquisition, sometimes called a takeover, is the purchase of a target company by another. Typically a larger company purchases a smaller company either through friendly negotiation or as a takeover. However in some cases a smaller company will gain management control of a larger company or more established company. This results in the combination of the two entities in what is known as a “reverse takeover” effect.
How does one company acquire or purchase a second company?
- Purchasing the shares of the targeted company: This type of transaction allows the buyer to not only gain control of the assets, but also any financial problems or risks associated with that company. The benefit to purchasing the shares of a company are the minimal taxes associated with the purchase. Stock transactions generally have little to no taxes for the buyer or seller shareholders.
- Purchasing the assets of the targeted company: If the buyer purchases all of the assets, the target company is bought with a clean slate and the sell-off cash is given back to the shareholders through liquidation or by dividend. Often a buyer will not purchase all of the assets and instead buy specific assets of the company in order to avoid past or future risks and liabilities. The downside to purchasing a company in this manner is the tax imposed on transfers of individual assets.
When purchasing a smaller business, stock purchases may not be involved. With regards to small businesses, a buyer might purchase company assets instead.
How are Mergers and Acquisitions related?
Mergers and Acquisitions (or M&A) is an economic term that refers to the selling, buying or combining of two or more companies to assist with the management, growth, or financial opportunities of a company in any given industry or market without the company having to develop a new business entity.
How are Mergers and Acquisitions different?
A merger is a combination of two companies either in the same, similar, or different industries. An acquisition is the purchase of a company by a larger or smaller company. Mergers and Acquisitions also differ in how each is financed. Whether a company is purchased or combined with a second company through cash, financing, or a mix of the two may change whether it is professionally considered a merger or an acquisition.
For more information or to set up a free consultation with a professional broker, contact George & Company today.