Mergers & Acquisitions
The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.
Mergers
In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons.
There are many varieties of mergers. A horizontal mergers take place where the two merging companies produce similar product in the same industry. Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine. Conglomerate mergers take place when the two firms operate in different industries. A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an initial public offering (IPO). Accretive mergers are those in which an acquiring company's earnings per share (EPS) increase. An alternative way of calculating this is if a company with a high price to earnings ratio (P/E) acquires one with a low P/E. Dilutive mergers are the opposite of above, whereby a company's EPS decreases. The company will be one with a low P/E acquiring one with a high P/E.
The completion of a merger does not ensure the success of the resulting organization; indeed, many mergers (in some industries, the majority) result in a net loss of value due to problems. Correcting problems caused by incompatibility—whether of technology, equipment, or corporate culture— diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities by one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting employee culture. These problems are similar to those encountered in takeovers. For the merger not to be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate.
Acquisitions
An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. The are several typers of acquisitions. In the first instance, the buyer buys the shares(and in effect the assets or whole company out right), and therefore control, of the target company being purchased. In effect this creates something that has higher growth rate in the given market. In the second instance, the buyer buys the assets of the target. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. A buyer executes asset purchase, often to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where one company splits into two, generating a second company separately listed on a stock exchange.
How We Serve Our Clients
Whether your company is listed on the Dow Jones or has one shareholder and director with a relatively small capital investment, buying, selling, or merging your business is one of the most difficult decisions and one with numerous perils if you are not experienced in such transactions. There are numerous methods of acquiring or merging businesses including but not limited to: asset sales; stock for stock and stock for asset transactions, mergers and consolidations; and triangular mergers and derivative transactions to name a few. The type transaction you choose can have long-lasting and negative tax consequence and unforeseen liability for years to come. Before you entertain any offers or enter negotiations, it is critical to understand your multitude of options in structuring the transaction to maximize profits and minimize tax and liability. During the negotiation, transaction, and escrow process, we will work closely with your team and accountants to help ensure that transaction will accomplish your desired goals.
Just as important as structuring the transaction is preparing your business for the acquisition, merger, or sale. In our personal lives, many of us put off until tomorrow what we can do today. This also holds true in business. Any corporate attorney can tell you horror stories about clients spending tens of thousands of dollars on corporate clean-up prior to the sale of the business. They can also tell you of lost opportunities when a potential buyer was not willing to accept such a risk when it is revealed that corporate, legal, and accounting matters have not been kept up to date for years. Before this happens to you, the Wenger law firm can provide a cursory legal audit to ensure your company's compliance with state corporate laws.
