The Different Types of M&A (Mergers and Acquisitions) in Ohio
What are the different types of M&A?
The different types of M&A are:
- Merger of equals
- hostile takeover
- Tender Offer
- Acquisition of Assets
- Management Acquisitions
Merger of equals
A merger of equals is when two competing companies of similar size merge together to form a single entity. This type of merger generally involves the shareholders surrendering their current stock and receiving new shares of the new company. The management of the new business is typically a combination of the management of the merging companies.
A hostile takeover is categorized as an acquisition because it is done without direct agreement from the shareholders. In a hostile takeover, the acquiring company will buy a majority stake in the target company, either through a tender offer to the board of directors or through a direct offer to the shareholders. The acquiring company may also purchase enough shares of stock in the target company to attempt to remove the current board of directors and elect a board that would approve the acquiring company’s tender offer.
Consolidations are similar to mergers of equals. In a consolidation, two companies will combine into one and reorganize their corporate structure. The difference here is that the new entity will not retain both management teams and may eliminate certain market positions. Consolidations are about combining core market positions and reorganizing to maximize the efficiency of the newly formed entity.
A tender offer is a direct offer from an acquiring company to the shareholders of a target company. The offer is to purchase all outstanding shares of stock at a set price that is not always equal to the market price of the shares. This type of offer bypasses the need for approval from the target company’s management or board of directors.
Acquisition of Assets
A business may choose to liquidate assets for various reasons, including bankruptcy, closing or consolidating locations etc. An acquiring company can offer to purchase the liquidating assets of the target company. This offer must be approved by management or the board of directors.
Management Acquisitions / Management-led-buyout (MBO)
A management acquisition, or management-led-buyout, is when the managing executives of a company purchase a controlling stake in the company. The management team then holds a majority interest in the business and may elect to take the company private. The decision to take the company off the publicly traded markets may be restricted by shareholders, especially if the majority shareholders do not hold the requisite ownership interest required under the bylaws to make a fundamental change to the company. For example, the bylaws may require two-thirds of shareholders to vote in favor of taking the company private, so the majority interest holders would either have to acquire 67% of the outstanding shares or convince other shareholders to approve the decision.
How the different types of M&A are structured
- horizontal merger
- vertical merger
- congeneric merger
- market-extension merger
- product-extension merger
Horizontal mergers are mergers between direct competitors. These mergers allow two competing companies to share valuable assets, customers / goodwill, and underlying operations to scale the new entity. This type of merger is a big target for monopolization and anti-trust issues.
A vertical merger is a merger between two companies that operate in different parts of the same supply chain. For example, a distributor or retailer may work with third-party suppliers. By acquiring the third-party supplier, the distributor or retailer can reduce their supply costs, allowing them to scale further with higher profit margins.
A congeneric merger is a merger between two companies that offer different products or services but their offerings synergize with each other. The customer base may use both offered products together, or may just generally end up buying both products. By merging, the companies capitalize on the customers’ purchasing habits or the products’ synergies, creating an expansion for the new entity.
A market-extension merger is an expansion of market base for the merging entities. The merging companies generally sell the same products or services to different markets. By merging, they share a market base and create an instant market expansion.
A product-extension merger is similar to a horizontal merger and congeneric merger. The merging companies offer different, but related, products to the same market base. For example, a cell phone company could merge with a phone case company to extend their product line offering to purchasers of cell phones.
A conglomeration is a merger of two companies that are not related in their business practices. These mergers would likely occur based purely on an analysis of the financial positions of the merging companies.
How the transactions are executed
When two companies decide to merge, they must decide if one company is purchasing the other or if both companies are being purchased by the newly-formed company.
A purchase merger is typical when two companies will continue operations under the name of one of the merging companies. Under a purchase merger, one company purchases assets and/or outstanding shares of the other company. This transaction is taxed and can provide tax advantages to the acquiring company.
Under a consolidation merger, both companies will cease to exist and will operate under the newly formed entity. The new entity will acquire financing and purchase the assets / shares of the merging companies. Some shareholders may relinquish shares of a merging entity and be issued shares of the new entity in leu of a share purchase.
The different types of M&A have a major impact on a transaction. M&A attorneys are absolutely critical during the process of an M&A transaction. Most companies hire teams of attorneys and accountants to advise them. As a Mergers and Acquisitions attorney, I can provide invaluable legal advice to your company during your merger or acquisition. To get the support of a top M&A law firm in Ohio, call Collier Legal today.
I started my law firm straight out of law school as a business law firm in Ohio. I went back to school and acquired my patent license while growing my firm. After practicing law for 4 years, I decided to transition my practice into exclusively patent law. Then, I decided to transition out of solo practice and join a team of attorneys and paralegals. Now, I run the business law and patent law departments of Doucet Law.