M&A Legal Deep Dive #1: The Difference Between a Merger and an Acquisition
This week we tackle the first aspect of M&A transactions so that you can begin to better educate yourself on what makes a deal and what happens along the path to closing an M&A transaction. People often wonder what Mergers and Acquisitions actually means, and the difference between a merger and an acquisition is frequently conflated. The distinction, however, is an important one, with the likelihood of the latter far outweighing the likelihood of the former.
Each week that we examine some segment of M&A, we will answer three important questions for you about the concept: “What is it?,” “Why should you care?,” and “When is it used?” The answers to these three questions should help you to demystify M&A, build your deal vocabulary, and increase your ability to understand and consider transactions.
Mergers and Acquisitions
1. What is it?
The reality is that in the current market there are less and less mergers. A merger occurs when two or more companies with relatively similar market positions join together to take advantage of some synergy that exists between them. Mergers come in many different forms, capitalizing on synergies in supply chain, geography, product development and distribution, and other areas.
Acquisitions are more common as they represent the power metric between companies. Most commonly when two companies decide to aggregate assets or markets there is a naturally stronger partner that becomes the acquirer and controls much of the fate of its less powerful, smaller, or niche-driven target. Attractive smaller target companies can exert significant control over the transaction process, but typically the acquirer controls the structure of the deal and its path to closing.
2. Why Should You Care?
If you are an owner or equity holder looking to exit or a company intending to grow through acquisition, positioning your company to best influence and control the transaction will give you the greatest advantage. While buyers have a distinct advantage in acquisitions, as a target, making your company more attractive or demonstrating higher value or preserving a unique position can help you impact the deal to your benefit. Recognizing your position within the deal can help your deal team structure a deal that is most advantageous to you given your position.
3. When is It Used?
Mergers are used when companies do and could exist independently but can see a clear path where both can benefit strategically from integration, vertical, horizontal, or otherwise (think Anheuser-Busch). Acquisitions more frequently occur to promote growth or to capitalize on benefits primarily to one of the parties in the transaction. Acquisitions also often occur in situations of economic distress, when financing obligations have become overwhelming, when owners need to exit for personal or other reasons, or when owners want to take some chips off the table for various reasons.
The field of M&A is extraordinarily diverse, and M&A law is a highly specialized field requiring deep knowledge of financing, operations, markets, and legal maneuvering. Jacquelyn Jordon Core and Michael T. Voytek are Founding Partners at Jordon Voytek, and April Slokan Oliverio is Of Counsel to the firm. They focus their practice on mergers and acquisitions, specializing in bringing sophisticated buy-side and sell-side transactions and unique deal structures to businesses of all sizes, from main street to the middle market. They are available for consultations to structure, negotiate, and close deals as well as to facilitate corporate restructurings and to assist businesses with their day-to-day legal needs.Please contact Jacquelyn directly at Jacquelyn@JordonVoytek.com, or by phone at 304.777.0790, Michael directly at Michael@JordonVoytek.com, or by phone at 203.360.6232, or April directly at April@JordonVoytek.com, or by phone at 304.216.2119.