Mergers & Acquisitions

In the highly competitive free market, it’s difficult for a business to survive on its own. Every good business owner has to pay attention to where the market is flowing and expand or change to meet it. Sometimes, this isn’t always possible for a business to do on its own. Sometimes a company with the capital to make a change doesn’t have the time or experience to change its business model well enough or fast enough. To help with that, a business can join with another business of similar size and worth with a similar problem in a merger. Or your business can purchase another business with the resources you need in an acquisition.

In either case, employees, resources, intellectual property, and real estate property all need to be properly taken care of and accounted for in a merger or acquisition. If everything isn’t taken into, account partners, clients, and employees can be slighted or hurt, necessitating them to take legal action against your business and the merger or acquisition as a whole.

The corporate law attorneys at Tressler & Associates can help you figure out if the merger or acquisition is a good idea, what types of mergers and acquisitions are available to you, and how to best proceed with one.

What Is a Merger?

A merger is specifically when two businesses, or firms in legal terms, come together to form one firm with one company stock. Rather than be two separate entities with different owners, the percentage of ownership is split between the shareholders and/or stockholders. The acting board of directors typically gets reshuffled as well. In the end, a merger results in a new company.

When Should a Business Enter a Merger?

Before deciding whether your business should enter a merger or acquisition, take stock of what your business wants, what it can afford, and what it needs. A merger needs to meet all of these requirements, and an attorney can help you confirm whether you can go through with a merger or acquisition. Your accountants can tell you if your business can afford a merger, and your business minds should know if your business needs a merger. An attorney can tell you if your business wants a merger, and if it can be in one.

What your business wants isn’t always so simple. You may have contracts like shareholder/stockholder agreements and founder’s/partnership agreements that dictate a business’s goal or fiduciary duty. When this is the case, you can’t always go against them. If your business’s goal is to succeed independently, you may not be allowed to merge. This can lead to your shareholders, stockholders, board of directors, or employees stopping you from completing a merger. An attorney can help you either get around this, prepare for this, or legally change your fiduciary duty.

What Is an Acquisition?

An acquisition works differently than a merger in that one company’s pre-existing company stays, and another is absorbed. One company will buy out more than 50% of another company’s shares. With this percentage, they can make decisions about and for the newly acquired company, its assets, IP, and property without approval from the other shareholders.

When Should a Business Enter an Acquisition?

Similar to when a business should enter a merger, a business needs to know several things to justify an acquisition. It’s all about the business’s wants, what it can afford, and what it needs. With an acquisition, what the business wants and needs isn’t too different from a merger, but what it can afford changes drastically.

In an acquisition, your business is fronting the cost, whereas, in a merger, the cost of doing business is shared. This means that the business’s fiduciary duty may be affected differently than in a merger, necessitating an attorney’s assistance. You may not be allowed to dip below a certain market value, use so much of the corporate savings account, or make such an expensive and large expansion all at once.

Having an attorney who keeps track and handles all of your contracts will make these issues possible to handle.

What Are All the Types of Mergers and Acquisitions?

There are five types of mergers and acquisitions that are separated based on two things: what industries the merging businesses belong to and what kind of businesses are merging.

• Conglomerate: This is when the two companies in the merger or acquisition are a part of two different industries. An example would be when the Walt Disney Company merged with the American Broadcasting company (ABC).
• Horizontal: This is when the two companies are in the same industry. They can be direct or indirect competitors. This means that companies that produce competing products or different products in the same space are considered horizontal to each other. An example would be Activision merging with Blizzard Entertainment, both being video game publishers.
• Vertical: This is when two companies are in the same industry, but at different levels of the production line, come together in a merger or acquisition. The Walt Disney Company merging with Pixar is an example of a publisher that funds films merging with a studio that physically creates them.
• Market extension: This is similar to a horizontal merger, where the merging companies are a part of the same industry and produce the same product or service, but are in different markets. AT&T purchasing Time Warner, another internet provider, would be an example of this type of merger/acquisition.
• Product extension: This type of merger is where two businesses in the same industry offer similar products but with completely different functions. If one business creates computer operating software and the other company produces computer security software, they are not competitors. When they merge or one acquires the other, they have a symbiotic relationship in the market.

Contact the Corporate Law Attorneys at Tressler & Associates

A merger or an acquisition may be key to your business’s survival. When you want your business to live long and prosper, you have to be able to keep all of your options open. Having an attorney who has a record of all of your business contracts, your fiduciary duties, and contacts for mergers and acquisitions, can give you options. Contact the corporate law attorneys at Tressler & Associates to make sure your business has every option for success that it can.