Business mergers and acquisitions are often talked about in one breath, as though they were two parts of one whole, but there are actually several key differences between the two.
The main difference – which is often more of a legal definition than anything else – is that in a merger, two companies combine to form a new, completely different one, whereas with an acquisition, one company (usually smaller) is completely bought out by another and the smaller company then ceases to exist. No new company is formed with an acquisition.
Often however, the end result of both a merger and an acquisition is basically the same, and the main defining differences in a non-legal sense are whether the deal was hostile or not, and the way in which the transaction was announced to, and received by, the target company’s shareholders, board of directors, and employees.
Reasons for Business Mergers & Acquisitions
* Create value for the shareholders – the theory is that two companies working as one are more valuable than two companies working separately. This is particularly appealing during tough economic times, and companies often come together in the interests of greater efficiency or with the hope of gaining more market share.
* Increased capabilities – these may come from increased research and development opportunities, bigger and better manufacturing facilities operations or acquiring unique technology.
* Diversifying products or services – Two firms that combine their products or services may gain a competitive advantage over their competitors.
* Replacing leadership – Sometimes, the owners of a private company want to cash out so that they can either retire, or invest their money somewhere else. A merger or acquisition might be their only option if they can’t find anyone within the company to take over from them.
* Overcoming the entry barriers – being in business is competitive and new companies often have to overcome certain entry barriers, such as brand equity and reputation, economies of scale, product & technology patents, etc.
It’s not always easy to understand all the motivations behind the somewhat complicated process of Business Mergers & Acquisitions. Minnesota has several specialist companies who can help and advise you.
If you want to find out whether a merger or acquisition could be right for your business, visit www.sunbelt-business-advisors.com for more information.
