Types of Mergers and Acquisitions
In the business world, the term mergers and acquisitions refer to the process of consolidating companies or assets. While used interchangeably, acquisitions and mergers are two separate processes with the former being the takeover of a smaller company and the latter being a joining of similar sized ones. There are several types of M&A that your company can encounter as you grow and knowing what each type is can help you better navigate the process.
Merger
In a standard merger, the boards of directors for both companies work out a deal to join forces as a new legal entity and seek the shareholders’ approval for the action. The companies can choose a different name with a combined workforce and assets, with both original companies ceasing to exist, or the acquired company can cease to exist and become part of the acquiring one.
Acquisition
Simple acquisitions involve one company taking over majority stake in another company, with no change in the legal structure or name of either company. This can help struggling companies stay afloat and gain needed insight for growth.
Consolidation
One of the most recognizable types of mergers and acquisitions is consolidation. This creates a new legal entity from two separate companies and must have the approval of shareholders. When the deal goes through, the shareholders get common equity shares in the new business entity and the two original companies cease to exist.
Tender Offer
A tender offer is where one firm offers to purchase the outstanding stock in another company at a specific price. This offer is made to the shareholders and bypasses the board of directors. Both companies may continue to exist if the deal goes through, but tender offers usually end with a merger.
Management Acquisition
A management acquisition is also known as a manager-led buyout, MBO, and is when the executives of one company purchase a controlling stake in a firm, usually with partners to help finance the transaction. This makes the firm private and must be approved by a shareholder majority.
Acquisition of Assets
The acquisition of assets is usually part of the bankruptcy process where multiple firms bid on the assets of a company during the liquidation phase. The company selling assets needs shareholder approval for the process.
Mergers and acquisitions are business deals which involve one company buying all or part of another. Sometimes this process results in one or both companies ceasing to exist and a new legal entity forming in their place. Shareholders, boards of directors or executives can lead these deals with permissions from all or none of the others, depending on the type of M&A employed.
