People often use the terms business acquisition and merger interchangeably, yet they are two separate types of transactions. If two businesses are joining forces, it’s a merger; however, if one business is buying another, it’s an acquisition. The reason many companies talk of a merger as opposed to an acquisition is because acquisitions can sometimes be viewed with negative connotations. For years, media and movies have often used the acquisition term to portray a hostile takeover, which unfortunately can cause the public and business industry to have misconceptions. Mergers, in contrast, tend to be seen in a more positive light. What other things do consumers and entrepreneurs need to understand about business acquisitions and mergers?
Acquisitions occur when one company steps in and buys out another company. In this situation, the company being purchased will no longer exist, and any assets owned will be absorbed by the purchasing company. The company purchaser also assumes all aspects and traded stocks of the purchased company. There can be several reasons an acquisition takes place, and not all are bad. Most take place when a company or small business is in trouble or distress. Sometimes a parent company or related industry business will acquire a business that has a large division that is no longer relevant but will purchase it to form a new business. In other cases, a successful small business may be expanding and will acquire another business within the industry that may not be performing well. For many acquisitions, the purchasing company or investor is viewed as a “Savior” to the struggling business, and employees of that business may not have to lose their jobs in many cases.
Mergers take place when two businesses combine resources to form a new and better entity. In most cases, the two organizations being joined are of equivalent size and industry, thus often referred to as a merger of equals. The stock of each independent company must be surrendered during a merger, and stock in the newly formed company will then be issued. Often, companies choose to call a transaction a merger even when it is an acquisition, as the company purchasing a business doesn’t want the public to form negative connotations surrounding the transaction.
If your company is looking to buy or sell a business, consider consulting with the professional business brokers of Del Lingco International. Since 1958, we’ve assisted business owners in negotiating win-win deals to help them buy, sell, or consolidate businesses and receive a return on investment.
To learn more about Del Lingco, or to get started, give us a call today at 713-783-5800.