In the vast majority of cases, corporations achieve growth by expanding internally, but there are also external means by which companies can achieve significant growth, those being through mergers and acquisitions. A merger occurs when an entirely new firm is created by combining two pre-existing companies. An acquisition is a transaction in which one company simply purchases another outright. Below is a discussion on each of these two business transactions, including information on the circumstances where each might be appropriate.
The two companies involved in a merger are generally of about the same size, and they participate as equals in the venture. Mergers will occur by joint agreement between each company’s Board of Directors, and usually after a vote has been taken among all shareholders of the two participating companies. Once the merger has actually occurred, any shares of stock in this newly formed company would be distributed to those shareholders belonging to either of the two previously distinct companies. Most mergers take place on a voluntary basis, which means they have the approval of both companies involved in the transaction.
An acquisition takes place when one company takes over another, and in this situation, the company being acquired ceases to exist after the acquisition. Even if the target company is allowed to retain its business name, all its operations will have been folded into the acquiring company, and it no longer exists as a separate entity. When an acquisition takes place, the acquiring company is generally the larger of the two companies, and is more solvent financially.
In some cases, the acquired company is set up as a separate division, and in other cases its operations are totally folded into the acquiring company’s operations. There are times when acquisitions can be friendly and the target company wants to be bought out by the acquiring company, and there are other cases where a hostile takeover occurs, simply because of the greater power and resources of the acquiring company.
Mergers and acquisitions can make your company much more competitive, and can position you for tremendous growth. If you’re thinking about a merger or acquisition, you should contact us at Lighthouse Capital to find out about some financing options.