Basics of Mergers and Acquisitions

In the news, it seems like most mergers and acquisitions are between large, Fortune 500 companies—certainly not something your smaller or mid sized business would ever consider or worry about. But then one day it happens: someone comes to you with a proposal, or an offer, and it involves exactly that—a merger or an acquisition.

Understanding Mergers

Although these are complex legal steps, mergers and acquisitions are actually exactly what their plan language meaning indicates.

A merger is when two (or more companies) become one. But that also has implications, many of which go beyond the law. For example, because you are now taking two sets of employees in two companies and now becoming one, some of those employees may be superfluous, or unnecessary, or duplicative—and that can mean layoffs.

Often, the new company will take on a new name. Legally, the debts and liabilities of either company remain; creditors from either of the formerly independent companies can still seek what is owed from the newly formed company.

What is an Acquisition?

An acquisition is a takeover of one company by the other.

Both companies often continue to do business in their names, and the general public may have no idea that there has been an acquisition. Both companies normally will continue to function on their own, although the acquiring company may make changes to the acquired company that call for layoffs or other cost cutting measures, although that isn’t always the case.

It can get more complex than this. For example, you may have just an acquisition of a company’s assets, or you can have the sale of shares in one company to another. Two subsidiaries of one parent company can merge to consolidate all of these subsidiaries.

Should You Merge or Acquire?

There are good and bad things to both mergers and acquisitions. Many are practical—for example, both of your online or IT systems must now be merged into one system, a system that there is a good chance one of the two companies involved will be unfamiliar with.

Owners, managers, or directors, and other high level employees are now working with other high level employees that they don’t know, have no familiarity with, and may not get along with. In fact, your office culture may be entirely different from the one you are combining forces with.

How the Process Starts

A merger or acquisition is much like a marriage, although one that can be much messier and more expensive to ever get out of, and one that affects a lot of lives—every employee in both companies.

That’s why in most cases, a letter of intent will be agreed upon, along with  confidentiality agreement, to allow both sides to do some due diligence,  conduct appraisals/valuations, and commence negotiations, with some safety that there will be no harm if they opt not to go through with the deal.

Let the West Palm Beach commercial litigation lawyers at Pike & Lustig help you with your merger or acquisition or any other corporate move you may want to make for your business.

Source:

investopedia.com/terms/m/mergersandacquisitions.asp