The Comeback of Mergers and Acquisitions

Posted on June 14, 2012 · Posted in Blog

The conventional wisdom that most mergers and acquisitions destroy value might just be wrong. Mergers and acquisitions made a comeback during 2011 and continue to flourish in 2012. The terms merger and acquisition are often used synonymously; however the terms are slightly different. When a company is purchased by a new owner and is clearly established as the new owner, it is an acquisition. In simple terms, the buyer takes over the business and the buyer’s stock continues to be traded. On the other hand, a merger occurs when two companies, usually of equal size, agree to move forward as one company. Both companies’ stocks are surrendered and a new company stock is issued to replace it.

It is unusual, however, for mergers of equals to occur. More often than not, one company will buy another company and agree to allow the acquired company to proclaim the merger as equals. The negative connotation of “being bought out” is avoided by describing the transaction as a merger. Often there is an agreement to purchase when both CEO’s agree that the joint operation is in the best interest of both companies. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced.

In general, mergers and other types of acquisitions are performed in the hopes of realizing an economic gain. For such a transaction to be justified, the two firms involved must be worth more together than they were apart. The global business environment has created an atmosphere whereby the merging of companies has become prolific. Growth and survival has become the motivation for mergers and acquisitions.

As in any legal transaction, it is important to consider the legal implications. Obtain proof that the target company owns important assets – property, equipment, intellectual property, copyright and patents. Research details of past, current, and pending legal cases. Identify the companies’ current and future contractual obligations.

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Source: Answers. Web. 07 June 2012. <>.