The Difference Between a Merger and an Acquisition
What is the difference between a merger and an acquisition? The terms “merger” and “acquisition” are common business terms, but they are often inappropriately used interchangeably, when in fact the two transactions are rather different. If you are planning to combine or purchase assets from another company it is imperative that you understand the benefits and drawbacks of each.
In a merger, usually two or more businesses wind down as separate entities, and then a new entity is formed – that is, two entities merge into one new entity. The assets and liabilities of both the original businesses are often carried over to the new company.
Recently, mergers have been especially prevalent in the healthcare and airline industries. For example, one of the biggest mergers has been American Airlines and U.S. Airways. Final steps of the 2010 merger, such as a single reservation system and consolidating frequent flyer programs, are still not complete because of the size of this operation.
In an acquisition, usually one business purchases all or part of another business. As in a merger, most acquisitions involve lengthy negotiations, due diligence, and portfolio transfers. In addition, sellers are generally required to provide information about its’ or their finances, personnel, business opportunities, marketing practices, insurance, and legal status.
Acquisitions are unique and fact-specific. For example, a seller may finance part of the sale in one transaction, or complete an acquisition using a transfer of stock or cash or both.
Examples of major acquisitions just this year include AT&T’s $69.8 billion purchase of DirectTV and Comcast’s $45 billion acquisition of Time Warner Cable.
If you are considering an acquisition or merger it is always best to consult with an attorney who can help find the most advantageous transaction in light of all the factors and issues in your particular case.
Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.