Differences & Similarities Between Mergers & Acquisitions
Mergers and acquisitions, collectively referred to as M&A, is a general business term that deals with consolidating companies, their operations, and their assets. Although there are lesser known as well as more specific types of M&A such as ten tender offer, management acquisition, consolidation, and acquisition of assets, this article aims to focus on the basics.
The lines between a merger and acquisition are not always clear. Often, what ultimately differentiates a transaction is how “friendly” the deal is. Though, there are other differences as well.
Number of Companies after Transaction
Mergers are when two companies, usually of the same size, choose to combine to create a new entity. In an acquisition, one company seeks to own, or takeover, another company. Either scenario can result in only one company after the transaction. However, in an acquisition, the company that is purchased or taken over, may continue to operate as a separate entity.
Friendly or Hostile
Whether a transaction is a merger or acquisition depends, in part, on whether both parties mutually seek to come together. Mergers are always mutually agreed upon and provide desired benefits to both parties. Acquisitions can also be mutual but, unlike mergers, this is not the only option. Sometimes, a company will be taken over in an “unfriendly” or hostile manner. Under these circumstances, the acquired company will likely be absorbed into the purchasing company, resulting in one company. Sometimes, the terms mergers and acquisitions are used interchangeably but, as we can see, they are quite different. Despite being two distinct types of business development options, there are also many similarities.
Growth is the Objective
While there can be many reasons a company may begin looking into a merger or acquisition, the intended outcome for the remaining company or companies is always growth. In fact, M&A is one of the most expedient paths to corporate growth. Such business transactions expand market share, decrease competition, and increase assets among other benefits.
Deep Analysis & Planning
When considering a merger or acquisition, the decision will only be as good as the analysis it is based on. The basis of this information is usually contained within the extensive CIM, or Confidential Information Memorandum. This document is typically provided after a company has expressed interest in purchasing or merging with another company and signed a non-disclosure agreement (NDA).
Further, once a decision to proceed with a merger or acquisition has been made, extensive, careful planning for post-merger integration is required in order to be successful.
Regardless of the size of the companies involved in a merger or acquisition and the circumstances around the transaction, they are always highly complex. The process in many instances takes years from the consideration stage to completion.
When you are bringing together two companies you are combining or replacing IT and MIS systems, the management and employee structure, employee benefits, financial recording and reporting methods, among a multitude of other core business aspects. Decisions around employment, such as which employees will remain, which will be let go, and what new roles will be filled by external parties, can take months and lead to many unnecessary, long-term hardships if not handled correctly.
The purpose of a merger or acquisition is to focus on maximizing the advantages. Without careful, guided consideration and planning it can delay or offset the intended benefits. These missteps can be both timely and costly. Therefore, it is always recommended to consult outside advisors who are experienced in M&A.
Joorney frequently partners with some of the best M&A advisors in the nation, working with them to create thorough, compelling CIMs. If you are looking to buy or sell a business, be sure to reach out to our team so we can refer you to top notch, qualified M&A companies to ensure your merger or acquisition is handled properly from start to finish!