Mergers and acquisitions are terms often used in the same breath, even to the point where we abbreviate them as M&A. However, while they both refer to the joining of two companies together, they are very different concepts. In this article, Apolo Lawyers (Tel: (+84) 903.419.479) will help our clients distinguish the difference between Merger and Acquisition.
People said that there is a difference between mergers and acquisitions. So, what is the difference between merger and acquisition?
A merger or acquisition transaction is the combination of two companies, resulting in either one corporate entity or a parent-holding and subsidiary company structure. Mergers and acquisitions (M&A) is the process through which companies consolidate via acquiring or merging with other companies, including the acquisition of assets of the company as well as its equity.
A Merger is a corporate strategy of combining two separate entities into a single company in order to increase the financial and operational strengths. One reason companies often decide to merge is to save on production costs. Another reason is to achieve enough to enter new markets or launch new products. These types of financial transactions are heavily regulated to prevent illegal deals and protect consumers from illegal pricing.
Legally speaking, a merger requires two companies to consolidate into a new entity with a new ownership and management structure (ostensibly with members of each firm). Mergers require no cash to complete but dilute each individual power of company. Typically, mergers are done to reduce operational costs, expand into new markets, boost revenue and profits. Mergers are usually voluntary and involve companies that are roughly the same size and scope.
An acquisition is the purchase of all or a portion of a corporate asset or target company. Acquisitions are a way for a company to achieve substantial growth seemingly overnight, build on the target strengths of the company, and capture synergies. Other reasons behind acquisitions include increased market share, new technologies, control of underutilized assets, and access to thorough distribution channels. During an acquisition, the acquiring company buys the target asset shares of the company which gives the acquirer decision-making power concerning the acquired assets.
Acquisitions tend to be more hostile than mergers since there is usually a high imbalance in power. They are also more common since it is fairly rare for two companies of roughly equal standing to consent to merge. Often, acquisitions are called mergers purely to avoid a negative connotation. In an acquisition, a new company does not emerge. Instead, the smaller company is often consumed and ceases to exist with its assets becoming part of the larger company.
An acquisition takes place when one company takes over all of the operational management decisions of another company. Acquisitions require large amounts of cash, but the power of buyer is absolute.
Companies might look to improve their market share, reduce costs, and expand into new product lines. Companies engage in acquisitions to obtain the technologies of the target company, which can help save years of capital investment costs and research and development.
The primary difference between mergers and acquisitions is that a merger is the combining of two organizations into an entirely new entity, while an acquisition is when a company absorbs another, but no new organization is created.
For instance, if two companies agree to merge and create a new legal entity, that would be a merger. On the other hand, if one company buys out another and absorbs it into itself without changing its own identity, that would be an acquisition.
Although some like to explain the difference as surrounding whether one of the disappears of companies into the other after the acquisition, this is not necessarily the case: Rather these are often issues of branding, incorporation, and even tax, and vary across all transactions.
A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another. Mergers and acquisitions may be completed to expand the reach of the company or gain market share in an attempt to create shareholder value.
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Apolo Lawyers is a law firm with many years of experience in legal issues relating to merger and acquisition transactions. Clients who are conducting merger and acquisition transactions can contact Apolo Lawyers for:
Advice on the process of mergers and acquisitions.
Support due diligence process and intellectual property due diligence
Advice on the notes when making M&A transactions, legal regulations and common risks when merging and acquiring businesses.
Consulting and representing in the negotiation process of merger and acquisition transactions.
For further information, please contact us: Apolo Lawyers via email at contact@apolo.com.vn or Hotline - (+84) 903419479 for the best legal advice and support.
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