Simply stated, mergers and acquisitions (M&A) are transactions in which the ownership of companies are transferred to other entities. From a strategic management perspective, M&A allow enterprises to:
- Grow
- Downsize
- Change the nature of their business
Mergers and acquisitions are easier to explain legally than from a commercial or economic point of view. A merger is a legal consolidation of two or more entities into one, whereas an acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets. Business wise, both types of transactions generally result in the consolidation of assets and liabilities under one entity.
A transaction legally structured as an acquisition may have the effect of placing one party’s business under the indirect ownership of the other party’s shareholders. However, a transaction legally structured as a merger may give each party’s shareholders partial ownership and control of the combined enterprise.
There are other differences:
- While a merger is generally considered to be friendly and planned, an acquisition is viewed as more hostile and sometimes even involuntary.
- A new company name results from a merger; in an acquisition the acquired company usually comes under the name of the acquiring company.
- In a merger, the companies involved normally consider themselves equals in the new corporate entity; In an acquisition, the acquiring company is always larger than the acquired company.
- The power difference is the same among companies in a merger; in an acquisition the acquiring company gets to dictate terms.
An M&A sounds like it should be cause for celebration. It can be a viable way to more quickly scale your business. But that is often not the case. In fact 30% to 40% of mergers and acquisitions fail to achieve their business objectives.
One common issue is what’s known as “the big company letdown.” There’s a general belief among entrepreneurs that selling to and working for a big company will solve all problems. But big companies move slowly due to many layers of bureaucracy and decision makers. Being acquired by a big company could mean lack of attention for your startup unless there is a well-documented agreement guaranteeing support before the acquisition.
Another common problem involves incompatibility when two staffs are merged into one. It’s crucial that companies involved in a merger due their homework and make sure senior management has clear roles and that they can work together with the “other” management staff. Employees down in the trenches must also be of the same mindset regarding a shared collaborative culture.
Want to know more about what it takes to be successful in a merger or acquisition operation? Tonex offers Mergers and Acquisitions Training, a 4-day course designed to help executives, technology, business and operations professionals get ready for the challenge of an M&A.
Besides Mergers and Acquisitions Training, Tonex offers nearly five dozen other courses in Business Skills.
Additionally, Tonex offers 120 different courses in a dozen categories in Leadership training.
For more information, questions, comments, contact us.