Mergers & Acquisitions
Small businesses can use mergers or acquisitions to increase profit share, become more efficient, and diversify the business. Mergers are not just for large corporations. In an evolving business market, merging small businesses can help the companies grow.
Merger and acquisition law can be complicated, even for small businesses. Make sure your business is prepared for a potential merger and in compliance with local, state, and federal laws. Talk to a mergers and acquisition lawyer about your legal options for a business merger.
What Are Mergers and Acquisitions?
Mergers and acquisitions (M&A) relate to the transfer or consolidation of equity or assets between the ownership of two companies. A merger is when two companies join together. An acquisition is when one company buys another company.
In business law, the term M&A transaction has become the go-to term to describe both mergers and acquisitions. Mergers and acquisitions are used strategically by companies to increase profits, become more competitive in their field, gain control of another business’s intellectual property, and improve their bottom line.
A merger can involve one company buying another and continuing under the buying company’s name. In a consolidation merger, the two consolidating companies can form a new entity.
There are many types of M&A deals, depending on your company’s needs. Examples of M&A transactions include:
- Strategic mergers: This occurs when the acquiring company sees the long-term value of the target company. Acquiring a target company is done to increase market share, broaden the customer base, and enhance the corporate strength of the acquiring company.
- Acqui-hire: This is an acquisition where the acquiring company seeks the target company’s talent rather than its products. This type of M&A is common in the tech industry in California’s Silicon Valley. Larger tech companies may acquire small start-ups to access talent and add expertise.
- Merger of equals: A merger of equals is a combination of two companies of nearly equal size. Examples of mergers of equals include AOL and TimeWarner, Citicorp and Travelers Group, and SmithKline Beecham and Glaxo Wellcome.
Types of Business Mergers
Mergers can be structured in different ways, depending on the needs of the companies. Different types of corporate mergers include:
- Horizontal merger: Companies in direct competition can be involved in providing the same products or services in the same area. When the companies combine, they can combine their customer bases and resources and increase efficiency and cost-savings.
- Vertical merger: This involves combining companies involved in the same industry, like a customer and a supplier. A candy company merging with a sugar producer is an example. The companies share their supply and demand, which can stabilize prices and availability.
- Concentric merger: This generally involves businesses in a related industry but providing different services. For example, a soda company merging with a bottled water company can provide similar products, but water and soda are not necessarily in competition for customers. The companies can combine resources like supplies, transportation, and logistics.
- Conglomerate merger: This is a combination of two unrelated companies. For example, Amazon and Whole Foods merging are unrelated businesses. One of the benefits of a conglomeration is diversification.
What Are Joint Ventures?
Joint ventures are different from M&As. In a joint venture, two entities take on a business venture but maintain separate interests. The two companies may share in the profits and losses of the joint venture but they remain separate entities.
Complying With M&A Laws and Regulations
The M&A process can be lengthy and complex for more than just large public companies. Even small businesses have to be careful to avoid problems with government agencies like the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC). There are a lot of moving pieces involving business lawyers, accountants, tax advisors, and other professionals.
The first step in an M&A is generally a letter of intent. This does not bind the companies, but it signals an initial understanding from both parties.
Each company’s board of directors (if it exists) advises its shareholders. The shareholders vote on whether to sell the company. Once an M&A transaction is approved, both companies file paperwork with the SEC outlining the terms and conditions and other details of the sale. The target company is integrated into the acquiring company and the acquired company’s shareholders are compensated.
What a Mergers Attorney Can Do
Mergers and acquisitions law is a practice area of corporate law. The legal issues in M&A transactions can depend on whether the transaction is a friendly or hostile takeover. But both require extensive due diligence Legal issues include federal regulations and antitrust laws, stakeholder rights, tax implications, corporate restructuring, liability, securities laws, etc.
An M&A lawyer is an advocate for their corporate client throughout the M&A process. M&A attorneys can identify your business objectives and legal issues and build a “road map” for the transaction from start to finish.