There are many ways for businesses to grow and expand. For some companies, mergers and acquisitions are the best options. These terms are often used interchangeably, but they hold distinct meanings with significant implications for the companies involved.
Understanding the differences between mergers and acquisitions can help business owners who are considering them to make informed decisions about these opportunities.
Mergers
A merger occurs when two companies, generally of similar size, agree to proceed as a single new entity, blending their assets, staff and operations. This process is typically seen as a mutual decision to enhance the companies’ market share, reduce costs or diversify their products and services.
Mergers often occur between companies looking to combine strengths, eliminate competition, expand their market reach or achieve economies of scale. The underlying idea is to create a more competitive and cost-efficient new entity.
Acquisitions
An acquisition involves one company purchasing another company, which can be a larger, smaller or equivalent entity. After the acquisition, the acquired company may cease to exist as an independent entity or continue to operate under its own name as a subsidiary of the acquiring company.
Acquisitions are typically pursued to gain a competitive edge by acquiring a rival, entering new markets, accessing new technologies or tapping into the target’s customer base. Acquisitions allow companies to grow rapidly and acquire assets without having to develop them from scratch.
Considerations after the merger or acquisition
Company culture and new policies must be established once a merger or acquisition occurs. This will likely entail revising or updating the employee handbook and other company documents, manuals and procedure statements. It may behoove owners to have a company-wide meeting or set of meetings to go over relevant changes.
This is just a single example of the kinds of considerations that business owners must contemplate in the wake of a decision to acquire another company or to merge with one. Because of the complexities of mergers and acquisitions, companies should have legal assistance each step of the way. This can help to protect the business’s interests as the process moves forward and the new company begins operations.