Both mergers and acquisitions refer to the process of joining two businesses; however, there are key differences between the two. In this article, we consider the key features of mergers and acquisitions.

What is a merger?

From a legal perspective, a merger entails consolidating two separate businesses into one new entity with a new ownership and management structure. It typically involves the owners of both former entities taking the new entity forward.

Mergers aim to reduce operational costs, expand into new markets and increase revenue and profits. They are usually voluntary and tend to involve companies of a similar size and scope.

In reality, mergers are relatively rare. This is because when two businesses join forces, it requires the CEO and management staff of one entity to agree to relinquish some of their authority.

What is an acquisition?

In an acquisition, the smaller company is often absorbed by the larger one and the smaller one ceases to exist with its assets becoming part of the larger company. Rather than a new company emerging, the smaller company has simply been absorbed into the larger one.

Acquisitions tend to have more negative connotations than mergers. Consequently, an acquiring company may refer to their acquisition of a smaller company as a merger rather than a takeover. An acquisition occurs when one company assumes all the operational management of another company. It may involve a large amount of cash. The buyer has absolute power.

A business may acquire another entity as a means of purchasing its suppliers. The acquisition could improve economies of scale which in turn would reduce per unit costs as production increased. It might enhance the acquiring company’s market share, reduce expenses and afford an opportunity to expand into new product lines. Alternatively, an acquisition might take place for the purpose of obtaining the target company’s know how, potentially saving years of capital investment, research and technological development.

As mergers are uncommon and takeovers are sometimes perceived negatively, the two terms have become increasingly intertwined and used together. Modern corporate restructurings are often referred to as merger and acquisition (M&A) transactions rather than simply mergers or acquisitions. The practical distinction between the two terms is gradually fading under the evolving definition of M&A deals.

Legal Support for Mergers and Acquisitions

Mergers and acquisitions are typically highly complex so require the advice of a trusted business law solicitor. At Beverley Morris & Co., we have experience in supporting clients in a variety of commercial law transactions, including:-

• Buying and selling commercial property
• Commercial leases
• Buying or selling a business
• Planning law
• Litigation and dispute resolution.

For more information about our business law services in Blackheath, South East London and further across England, please click here.