Mergers and acquisitions are ways of combining two companies. Typically, companies involved in these transactions are seeking to consolidate their footprint in a given industry. Mergers and acquisitions are an excellent way for companies to grow. When these transactions go right, they lead to increased efficiencies. In some cases, a merger or acquisition is the way that one company eliminates a close competitor.
Mergers and acquisitions are often abbreviated as M&A. This shorthand can be valuable in industries like law and finance, where some professionals specialize in these types of transactions. Mergers and acquisitions can be complicated. They involve a lot of considerations for both of the parties involved. When one of these transactions goes forward, it’s crucial to get experienced professionals involved. The exact type of transaction between the two firms can also be significant.
A merger means that two companies are coming together under one corporate identity. In this type of transaction, one company is eliminated. For a merger to happen, both boards of directors must get approval from their shareholders. An acquisition is different. In this type of transaction, one company purchases a majority stake in another. The company that was purchased keeps its name and branding intact.
Many other types of transactions tend to fall under the M&A umbrella. The first is consolidation. In a consolidation, two companies come together and form a new entity. Shareholders from both sides must approve the transaction, and they receive common stock in the new company. A tender is a takeover bid, where a party contacts shareholders and offers to purchase their stock. This is a sort of hostile takeover, where the acquirer takes steps to go around the board.
Acquisition of assets is different. It typically takes place when one company is bankrupt. In this kind of transaction, a healthy company buys the assets of a struggling one. They must get the approval of the target company’s shareholders to do so. Finally, there are also management-led buyouts or management acquisitions. In this kind of transaction, the executives from one company buy the public stock of another company. This makes the target company a private, de-listed entity. To make this kind of acquisition, the executives must have shareholder approval.