Mergers and acquisitions (“M&A”) are unique transactions that have the power to improve productivity, change the nature of an entity’s business and realign the size of an operation. While beneficial for many reasons, these transactions also tend to confuse many legal professionals. In essence, though, they’re relatively simple in both logic and definition. Once the basics are understood, the transactions become a lot clearer.
What is the Logic Behind M&A?
The reasoning for a merger or acquisition is value. The idea is that two companies coming together as one is more valuable than the two businesses working independently. The allure for one company to purchase another is to become more competitive and cost-efficient, while increasing shareholder value. For companies that get bought, or target companies, they typically agree to the deal because they realize they can no longer survive on their own.
What is the Difference Between a Merger and Acquisition?
While the transactions are often used interchangeably, they mean slightly different things. A merger, on a general level, takes place when two companies of about the same size agree to proceed in business as a single new entity. Both companies’ stocks are given up and new stock is issued. When the companies are about the same size, the merger is referred to as a “merger of equals.”
An acquisition, on the other hand, is when one business clearly takes over another company. The purchasing business in an acquisition becomes the new owner and the business that gets bought ceases to exist from a legal perspective. The buying company takes over the business of the target company and the buyer’s stock continues to be traded while the stock of the target company does not.
What are the Specific Benefits for M&A?
Four main benefits are often cited when a merger or acquisition takes place. These are:
- Cost savings. M&As save money. This is especially the case when it comes to staffing. A merger or acquisition usually means that jobs will be lost. For example, when an M&A takes place, there is no need for two legal departments anymore, or two accounting departments, or even two CEOs. As the workforce gets reduced, a tremendous amount of money gets saved.
- Greater purchasing power. One larger company, compared to two smaller ones, will have greater purchasing power when it comes to buying office equipment and supplies. In addition, a larger company can often buy these items in bulk – which leads to increased savings.
- Better technology. Companies often buy other companies that have unique technological systems, or innovative technological approaches. They do so in order to improve their own technology and stay at the top of technological developments.
- Improved market reach. One company buying another means that it will reach new markets and grow its revenues and earnings. This act will also improve the two companies’ marketing and distribution systems, which in turn, will increase their sales opportunities.
QUID PRO QUO provides customized mergers and acquisitions solutions that match discerning legal talent with corporate and legal transactional needs. Our approach to this field emphasizes:
- Immediate and effective response
Our team can anticipate needs and respond with solutions that work. We have proven experience in such core areas as:
- Finance and Accounting
- Information Technology
- Human Resources
- Transaction Structuring
- Post-Merger Integration
QUID PRO QUO stands as the tested leader when it comes to maximizing the success of mergers and acquisitions. We support both law firms and corporations and recruit only top-shelf legal talent to address their needs. Contact us today and get your M&A questions answered now!