In essence, mergers and acquisitions refer to the combination of companies and/or business assets. A few terms to keep in mind when thinking about M&A in general are:
- Mergers: When two companies are combined to form one entity
- Acquisitions: When one company takes over another
- Consolidations: When smaller companies’ assets and liabilities are combined into one major entity
- Tender Offers: When a company makes an offer for the shares of a public company to purchase some or all of the stock to acquire the target company
- Asset Purchases: When the asset of the company is acquired but not the company or its liabilities
- Management Acquisitions and Buyouts: When a group of senior management will take control of another corporation backed by an investor
These are the main types of deals that are found in M&As
Both mergers and acquisitions are two different types of deals, within themselves.
There is a misconception between the two words because usually, acquisitions are phrased as “merging” only to present the deal in a friendlier manner to the public for the sake of the company being bought off.
- A merger occurs when two companies of a similar size combine to become a singular new company. Both companies are equal partners and sometimes are even called a “Merger of Equals” as, commonly, both companies split the main jobs equally. Often there is a lot of negotiation regarding the deal finalization where the directors of the two companies obtain approval from shareholders, combining both businesses into one larger entity.
- An acquisition occurs when one company, usually a bigger company, purchases another, a smaller company. It is not the formation of a new company but more so the target company is subsumed by the buyer and is also sometimes referred to as a “takeover”. The target company then becomes a wholly-owned subsidiary, going under the corporate entity and ownership of the buying company but does not necessarily change its name or corporate structure.
It is important to understand the difference between the two if planning to engage in either buying or selling a business or planning to merge.