Mergers & Acquisitions – How Well Do You Know the Basics?

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Mergers and acquisitions –commonly called M&A transactions – can be integral components of your company’s strategy for growth and survival. Understanding what’s involved with these business deals on a fundamental level can help you make informed decisions about how your company can expand or sell while managing risk.

Mergers at a Glance

If your company is considering a merger, it’s likely that you and another business owner have agreed to combine your companies to take advantage of economies of scale. This can be a viable strategy for like-minded business owners who seek to control a greater share of the market and benefit from a larger size under a new – but unified – banner.

Acquisitions at a Glance

With an acquisition, one company or person is purchasing the assets or securities of another company. This can be achieved by offering cash, equity in the purchasing company, or a combination of the two. They are often initiated by a larger company or private equity firm with an eye towards growth and expansion, often with a plan to sell the consolidated entity in the future.

Sellers have various reasons to sell their businesses, including retirement, estate planning, and cashing out to move onto something new. One example is a career entrepreneur whose goal is to create viable startups and sell them at a profit to bigger players. Another example is a seller who wants to become part of something bigger.

Types of M&A Transactions

When it comes M&A actions, there are four common types of transactions that use the blending of company assets for different effects.

These types of M&A transactions are shaped as:

  • Horizontal M&As - Two companies doing relatively the same thing combine to increase their range in the market. An example would be two competing computer companies merging into a new company.
  • Vertical M&As - Two companies doing different things in the same industry along the supply chain combine. If an entertainment streaming service acquired a film and TV production studio, the transaction could be considered a vertical acquisition.
  • Conglomerate M&As - Companies from different industries combine to broaden their range in the market. An example of a conglomerate would be a company that has divisions dedicated to digital cameras, television sets, headphones, and cell phones all sold under the same name.
  • Concentric M&As - Different companies combine to offer different services to the same customers. An example would be if a food company began acquiring companies that developed kitchen appliances.

Understanding these types of M&A transactions can be essential to moving your business ahead – and in a better direction.

Structures of M&A Transactions

When it comes to structuring the transaction the two primary considerations are protecting against liabilities and minimizing tax recognition. Structures include an asset sale, a stock sale, and a merger. However, more complicated structures can include forward and reverse triangular mergers, sometimes combined with both asset and stock sales.

At the end of the day, the end result is usually the same. The seller gets paid and the buyer gets a business.

Get Help From Adams Corporate Law, Inc.

Buying a business is a complicated process because businesses are complicated. Buyers have a right to know what they’re buying and will investigate in detail the assets and liabilities. Buyers will then assess the risk of unknown or potential liabilities. Every transaction should address these risks and clearly spell out who will pay for problems if they develop. No buyer wants to be surprised after the closing with an undisclosed liability.

Sellers also benefit from experienced corporate counsel. It is important to prepare for the sale in order to assure the buyer that you know what you are selling them, and that you can be trusted to be open about your business. Experienced corporate counsel will help protect their client to achieve their goals, and will improve the likelihood that the transaction will close with the right terms and conditions and the right pricing mechanisms.

An experienced corporate law attorney will help you negotiate the price, the structure, the tax treatment, and the apportionment of risk for known and unknown liabilities. An attorney will help the buyer investigate the details of the business they are buying.

Having an experienced M&A attorney to guide you through the process can help you protect your interests during a merger or acquisition. These are complicated financial transactions steeped in laws and regulations that must be adhered to. Feel more secure about your position by reaching out to us for help.

Contact Adams Corporate Law, Inc. online or by calling us at (714) 699-9602 to schedule a consultation to learn more about our M&A services and solutions.

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