Mergers and acquisitions (M&A) are frequently in the news. You've likely seen stories recently about mergers or acquisitions. Some notable examples include Disney and Fox announcing a billion-dollar merger, CVS pharmacy and Aetna health insurance merging, Hershey acquiring the Amplify brand, and Oracle acquiring the Australian company Aconex for over a billion dollars. M&A is constantly happening in the business world, not just with large corporations but smaller local companies too. In Boise, it's common for businesses to join together by acquiring one another to grow their market share. However, M&A is not something to be entered into lightly. It's important to be informed about mergers and acquisitions and work with an experienced business lawyer to protect your interests.
So how familiar are you with M&A? If you're a business owner, it's time to refresh your knowledge of this key aspect of business law and ensure you understand the basics. M&A is an integral part of the business landscape.
Mergers and Acquisitions 101
A merger is when two companies join together to create a new business entity. They may continue operating under one of the original names or choose a new one. Mergers tend to be cooperative endeavors since the owners or CEOs of both companies believe combining will benefit everyone involved. Acquisitions differ somewhat. An acquisition occurs when a larger corporation purchases a smaller company and brings it into their organization. While acquisitions can happen amicably, some take place in a hostile setting, like when the smaller business is unwillingly bought out due to financial constraints. Though the terms are sometimes used interchangeably, legally there are distinct differences. As a business owner, it's crucial to grasp the distinction and implications of each.
How Do Mergers and Acquisitions Happen?
There are numerous ways that mergers and acquisitions (M&A) transactions can come about. Two chief executive officers (CEOs) who are competitors may determine that by combining their businesses, they can capture more market share and grow a single business into something much stronger and more valuable than they could achieve independently. Or a larger company may decide to acquire a smaller company to gain access to its intellectual property, like an invention or technology that they want to utilize. There are many factors that can bring an M&A deal to the table. Once there, valuing the businesses will be key.
Valuation refers to the worth of the business being merged or acquired. There are various methods for valuing a business. If it is a publicly traded company, the valuation will be based on the stock price. If it is a privately held company, the valuation may come from a formula examining annual profits, inventory value, or the cost to replace the entire company. Other valuation factors could include future business potential and risks. The final price will come down to negotiation, with the acquired company seeking the maximum value and the acquiring company wanting the best deal, so bargaining can become intense. Once the price is settled, the legal paperwork can proceed.
The Legal Side of M&A
The effects of both a merger and acquisition are far-reaching for the two companies involved. It is crucial to have a knowledgeable business attorney assisting you to ensure your best interests are represented and you comprehend the complete implications of the agreement now and later on. Some of those implications may include:
Taxes. If the deal is in cash, you will pay taxes on that money. But if it is in stocks, there are no taxes paid until shareholders sell their stocks eventually. You could avoid a huge tax bill if you do a share-for-share transaction.
Leadership. Sometimes leadership stays, sometimes they go, including the owner. As an owner, you should clearly grasp whether you have a place in the new organization or if you will be retained when your company is acquired. You will likely need to stay with the company for two to three years after the deal, so ensure you are prepared for that.
Deals fall through. M&A can be tricky, tentative, and emotional. Ensure you know the implications if the purchasing company withdraws and whether the smaller company has any recourse if they do.
If you are considering a merger with another company or want to acquire a company in Boise, you will want an experienced M&A lawyer on your side. Contact Gravis Law for a free consultation with our business law team. You can call us or contact us through our website and a team member will respond right away.
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