Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities.

The distinction between a ‘merger’ and an ‘acquisition’ has become increasingly blurred (particularly in terms of the ultimate economic outcome). Although it has not completely disappeared in all situations. From a legal point of view, a merger is a legal consolidation of two companies into one entity. Whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner (in which case the target company still exists as an independent legal entity controlled by the acquirer). Either structure can result in the economic and financial consolidation of the two entities.

In practice, a deal that is an acquisition for legal purposes may be euphemistically called a ‘merger of equals’. This is where both CEO’s agree that joining together is in the best interest of both of their companies. When the deal is unfriendly, that is, when the target company does not want to be purchased, it is almost always regarded as an ‘acquisition’.

A disposal contract is an agreement governing the sale of a business’s assets or the entirety of a business. A buyer may be interested in part of a business, leaving the seller with obligations and liabilities, or the entire business is sold including liabilities. It is usual for a buyer to do due diligence on the seller, in order to understand what liabilities it will inherit. In some instances, a seller conducts due diligence on the acquiring company, for legacy reasons.

Essentially all acquisitions, mergers and disposals are nothing more than doing a deal. And all deals involve people – therefore, they involve emotions, ego, fear and greed.

Thus all good deals involve psychological play to ensure good outcomes. It’s always more than just the numbers.

For further information, please contact Bruce Sheppard, one of the Gilligan Sheppard partners.  Bruce Sheppard Em: bruce@gilshep.co.nz Read Bruce’s profile here…