MERGER Vs ACQUISITION



Merger: It is a combination of two or more entities. Types : i) Forward merger: The target company receives the acquirer’s stock. ii) Reverse merger: The acquirer company receives the target company’s stock. iii) Subsidiary merger: An acquirer incorporates an acquisition subsidiary and merges it with the target company iv) Triangular merger: the target company’s assets are conveyed to the acquirer’s company in exchange for the acquirer’s stock. Acquisition: Here the acquirer purchases all or substantially all of the common stock of the target company for a specified price. How merger is different from acquisition: 1. In a merger, the parties negotiate how relative value will translate into the amount of ownership each party will have in the new company. In an acquisition, the parties negotiate how the relative value contributed to the new enterprise will translate into the purchase price. 2. Merger does not require cash but Acquisition may require cash. 3. Merger leads to dilution of ownership but Acquisition does not lead to dilution of ownership 4. The differences between merging and acquiring are important to valuing, negotiating and structuring a client’s transaction. Acquiring another business lets owners: Establish a base: Obtain a going concern in a particular location. Establish a niche: Bring in more business of a certain type. Increase productivity and profitability :Increase output with unchanged fixed costs, yielding higher profit. Expand geographic coverage : Obtain entry into adjacent market areas. Increase prestige : Drive company value up. Merging offers the above advantages and additional ones, such as Succession planning : A way to secure retirement though new ownership. Reduced work level : A way to share responsibility among more people. Security of a larger organization : A way to cope with larger competitors



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