Legal Basics in Mergers and Acquisitions (M&A)
M&As are like marriages. The harmonious ones don’t make the news.
Mergers and Acquisitions (M&A) are a part of corporate law that deals with combining two or more companies (or legal entities — more formal term) into one. This process is regulated by many laws at both the federal and state levels.
So, in a merger, two companies agree to join together to form a single new company. This is often done to expand market reach, share resources, or enhance capabilities without having to build those functions from scratch. Both companies’ stocks are typically surrendered, and new company stock is issued in their place.
An acquisition is slightly different. This occurs when one company buys another company, typically by purchasing a majority stake in the target company. The company that is bought can either continue to operate as a separate entity under the umbrella of the parent company or can be completely absorbed into the purchasing company. This process is usually aimed at gaining access to new markets, increasing revenue streams, acquiring new technologies, or just eliminating competition.
Both mergers and acquisitions are really complex processes that require very deliberate planning, irritating negotiation, and hopefully intelligent execution.
