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When to consider a merger or acquisition

On Behalf of | May 27, 2021 | Business Law

Businesses in McKinney and other areas of Texas often go through mergers and acquisitions, known as M&A, to benefit their organizations. A merger means that a new business forms when two businesses combine while an acquisition takes place when a firm buys another firm. Knowing more about these options may help you in considering if one path is right for your business.

Reasons for a merger

Synergy is often a reason for a merger. It means that the sum of the whole will be greater than the two parts. Shareholder wealth may be maximized, and tax effects, financial economics, operating economics and management efficiencies may all create synergy. Combining businesses with the help of professionals experienced in Texas business law may be advantageous.

What are the types of mergers?

The types of mergers have several differences between them. Their distinguishing characteristics include the following:

  • Horizontal mergers are when two firms that produce similar products merge.
  • Vertical mergers occur when two firms that use the same supply chain merge.
  • Conglomerate mergers are when two business without a common economic consideration merge.
  • Congeneric mergers happen when two companies that serve the same market, selling complementary products, merge.
  • Market extension mergers are when two companies that sell the same product or service in different markets merge.

What are the types of acquisitions?

This is a takeover of another company by another company, called the acquiring company. The two types of acquisitions are the following:

  • Friendly takeover – With approval of its board of directors, two companies discuss acquisition.
  • Hostile takeover – The target company resists the buying of its business.

Advantages and disadvantages of M&A

You may acquire talented personnel, intellectual property, production processes, more efficiency and other benefits. Beneficial synergies should be available to both companies, or it is not advantageous.

There is always the potential for clashes between the two businesses. Corporate cultures may not be compatible. Monopolistic behavior may ensue, or an overestimation of the two synergies may happen.

If you need help with M&A or business law, it may be wise to consult a trusted attorney with experience in this area. An attorney may help review all contracts and terms to ensure that their client benefits from the deal.