The phrase ‘mergers and acquisitions’ is a common one in the business world. We’re used to talking about the long list of (often transformative) benefits that successful mergers and acquisitions bring to businesses looking to grow, scale, or develop a more competitive edge over the market.
There are some similarities between the two different strategies, but it’s important to understand the difference so that you’re not met with any unwanted surprises further down the line.
Here’s what you need to understand about mergers and acquisitions as two separate strategies for development.
What is a Merger?
A merger is when two or more companies form a brand-new legal entity together. For example, in 2005, Google and Android merged together to create Google Android. This gave them an enviable stake in a market that was growing increasingly competitive thanks to big names like Apple, who would release the first iPhone just two years later.
When a merger takes place, shareholders in the businesses involved will go onto to hold shares in the new entity, and the tone will feel more collaborative than acquisitions tend to feel, since responsibilities and control are shared between the different businesses involved.
What is an Acquisition?
An acquisition is weighted more towards one business than the other. Instead of coming together as equals, an acquisition will see one business retaining its own identity and ‘absorbing’ the other business into its fold. A new entity is not created – rather, one grows larger, and the other stops being recognised as its own legal entity.
This can mean the tone feels less collaborative. Acquisitions can be a little more daunting to the business’s existing workforce since their role within the business can be threatened by the other business’s own teams – although this can still be the case during mergers.
When an acquisition takes place, it’s not necessarily the case that all shares are attained by the acquiring company. Shareholders of the other company can maintain a stake, although this will depend on the terms of the agreement.
Managing Mergers and Acquisitions
While the two are very distinct strategies with their own unique ramifications for the businesses and stakeholders involved, they both need to be treated with the same degree of caution.
Whether you’re already considering an offer for a merger or looking to acquire a business, the best person to turn to will always be your corporate solicitors. It’s an understatement to say that mergers and acquisitions are incredibly demanding prospects – they will drain time, resources, and money at a point when continuity is more important than ever.
From due diligence to NDAs and contracts, your solicitor will be your guide during this process.
You’ll also want to ensure good communication with your workforce and customers. Even the most collaborative merger can feel unsettling to your employees, and reassuring them of your intentions is fundamental to the merger or acquisition’s success.
Done right, these strategies can take your business to the next level and enable to corner a much bigger share of the market. Done wrong, they can cause major issues for business continuity.