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When several companies, two and more, decide to form a new entity together, it is then considered to be an M&A deal. The process usually consists of a few components, like corporate finance and asset purchases, that make the procedure easier. It is typically aimed at becoming a more solid and sustainable company. The knowledge of steps involved in a merger is useful for ones planning to do an M&A transaction.
The process of merging
The formation of a new commercial entity is the goal of mergers. It is supposed to advance the newly formed company’s efficiency by consolidating assets and debts of the participating enterprises. The same approach is performed with the stocks of the original companies. The merger procedure can be useful for two competing companies if they are aiming at joining their forces and supporting their business at conquering new markets. It may even be a tool for production processes optimization and saving of the assets if concluded with suppliers.
For those planning on undertaking a merger, COREDO is here to advice on merger-related subjects and many other questions.
The process of acquisition
The process when one commercial entity purchases the other one and covers all the expenses is called acquisition. It implicates the whole or partial buying of a commercial entity in order to have control over stake in it. This process does not involve consent security from the shareholders while purchasers of stocks make decisions about the purchased company’s assets. Even if the company that is being acquired does not consent to the purchase, it still can be acquired. These acquisitions are considered to be hostile.
The specialists in COREDO are experienced to provide legal consultations on acquiring a company.
Deals of consolidation
Small companies can join together and create a large business by undergoing the consolidation process. The assets and liabilities of participating businesses then belong to the new company. Firstly however, the deal should be supported by each company’s shareholders. Then, after the procedure is approved, the shareholders gain the exact shares as before but entitled by the newly created enterprise. When the financial statements of the participating companies are being combined into a joined profile, several issues may occur. The companies need to handle them as a part of a consolidation transaction.
The meaning of a tender offer
While getting ready to perform an M&A transaction, an offer needs to be prepared – a proposal for all or some of the stocks of the company that will be acquired. It is necessary to provide a financial incentive for the stakeholders to sell the stocks so the price in the offer is higher than on the market. The investor is seeking the goal of owning the business that interests them to have control over it. The advantage of the tender offer is the fact that the investor can include conditions in an M&A procedure in order not to be liable for buying the stocks in the future. The purchasers are also not obliged to buy shares before the final price is proposed.
What are the differences: mergers or acquisitions?
M&As can seem fairly similar. However, there are some differences between them to consider. In the acquisition the emphasis is on one company buying another one, while in mergers companies decide to create a union by joint agreement. Also, only in mergers the new enterprises are created, not when one business takes over another. Not to forget that for mergers usually several companies, maximum of 3, unite. For acquisitions it always takes only two businesses.
In mergers the participating companies are typically identically big. By merging they aim at competing less with each other and increase their productivity instead. When the acquisition happens the buying company’s size is much larger than the size of the acquired enterprise. By performing the acquisition, the purchaser gains an opportunity to develop its own company.
Support from COREDO
Are M&A transaction plans relevant for you? Do you need to learn more details about them? Our specialists in COREDO would be happy to assist and legally support your M&A transactions.