07 Dec Mergers VS Acquisitions
Mergers:
Mergers are (usually) the combination of two similar-sized companies into a single entity for the purpose of creating a new larger and hopefully more efficient company that provides a wider value to the market. A few characteristics that may accompany a merger;
- Typically leadership from both companies will remain post combination
- Financing if required will be tied to the combined entity
- Balance Sheets are combined
- P&Ls are integrated but reflect savings in redundant areas like administration
- Often involve companies in the same market but different categories of service/products
Acquisitions:
Acquisitions are in most cases a larger entity acquiring a smaller one for the purposes of accelerating growth or filling a gap in an existing offering. Acquisitions come in lots of different structures but in most cases involve the acquiring entity purchasing all the stock of the acquired entity. The surviving entity is typically the acquirer and the combined new company normally retains its existing leadership while the leadership from the acquired company are integrated into the business or exit entirely. A few characteristics we typically see;
- Larger companies buying smaller ones
- Companies acquire a product or service missing from their current offering
- Companies acquire a competitor and their market share.
- Companies selling to a financial buyer as part of growth financing or an exit
- Companies looking to expand into new geographies
- Leadership doesn’t always stay post combination
Currency (cash & stock):
In both merger and acquisitions the parties can and typically do leverage a combination of currency to finance the deal. As an example equity could be used to offset cash needs in the business, which prolongs liquidity for prior owners but usually provides a premium. Cash is still king in many transactions and is often the most attractive when sellers are negotiating with financial buyers vs strategic. Cash may come with a series of traditional holdbacks and chargebacks but for the most part provides a clean demarcation in ownership post close.
Revenue Rocket has been an M&A Broker for over 20 years. Consider working with us on your next transaction.