Merger and acquisition (M&A) transactions can be roughly divided into either mergers or acquisitions.These terms are often used interchangeably in the press, and the actual legal difference between the two involves arcana of accounting procedures, but we can still draw a rough difference between the two. Read more
Merger and acquisition (M&A) transactions can be roughly divided into either mergers or acquisitions.These terms are often used interchangeably in the press, and the actual legal difference between the two involves arcana of accounting procedures, but we can still draw a rough difference between the two.
When a larger company takes over another (typically smaller firm) and clearly becomes the new owner, the purchase is commonly called an acquisition. In most cases, the target company ceases to exist post-transaction (from a legal point of view) and the acquiring corporation swallows its business. The stock of the acquiring company continues to be traded.
A merger occurs when two companies, often roughly of the same size, combine to create a new company.Such a situation is often called a “merger of equals.”Both companies’ stocks are tendered (or given up), and new company stock is issued in its place. For example, both Chrysler and Daimler-Benz ceased to exist when their firms merged, and a new combined company, DaimlerChrysler, was created.
For an investment bank, M&A advising can be highly profitable, and there are possibilities for many types of transactions. Perhaps a small private company’s owner/manager wishes to sell out for cash and retire. Or perhaps a big public firm aims to buy a competitor through a stock swap. Whatever the case, M&A advisors come directly from the corporate finance departments of investment banks. Unlike public offerings, merger transactions do not directly involve salespeople, traders or research analysts, although research analysts in particular can play an important role in “blessing” the merger.In particular, M&A advisory falls onto the laps of M&A specialists and fits into one of either two buckets: seller representation or buyer representation (also called target representation and acquirer representation).
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