Both mergers and acquisitions combine two or more businesses into one with the intent of achieving greater strategic scale, market access, technology, and synergies.  Both require diligence and can trigger antitrust and regulatory review.  However, they differ greatly in legal implications, finance/accounting considerations, impacts on stakeholders, and integration strategies.  Following brief definitions, I highlight a handful of these differences below:

Definitions

Merger:  Combines two or more independent companies into a single, new entity.  Typically, the participants are treated on near-equal footing, with ownership often reallocated through share exchanges and/or a new equity issuance.

Acquisition:  One company purchases another’s equity or assets and assuming total control.  Only the buyer continues as a legal entity; the target may continue as a subsidiary, be folded into the buyer, or dissolved.

Legal Considerations

Corporate Consent

Mergers often require board approval and stockholder votes from both parties.  Statutes prescribe the merger procedure.

Acquisitions may require fewer equity-level approvals for the buyer, but require seller and, often, creditor/third-party consents.

Liability Transfer

In many mergers, pre-existing contracts, employee agreements, pensions, and tort liabilities remain with the continuing entity, unless indemnities are negotiated.

In many acquisitions, buyers may be able to exclude liabilities, but typically still face successor liability in regulated areas.

Employment Law

Laws typically require employment relationships and collective bargaining agreements to survive a merger.

In most acquisitions, buyers have the discretion to retain, renegotiate, or terminate employment relationships, subject to contractual and statutory protections (e.g., WARN Act notices, pension and benefit continuation rules, union contract obligations).

Accounting/Finance Differences

Corporate Accounting

Though mergers are often presented as a joining of equals, one company’s financial statements still become the basis for reporting the combined business.

In an acquisition, the buyer simply adds the target’s financials to its own at closing.

Liabilities

Pre-existing debts and liabilities generally carry over into the merged entity.

Asset-based acquisitions can be structured to exclude certain liabilities, limiting buyer exposure; however, equity-based transfers all liabilities to the merged entity’s consolidated statements.

Asset Valuation

In mergers, especially equity deals, the target’s existing asset values remain unchanged, unless special tax steps are taken.

In most acquisitions, especially asset purchases, the buyer is able to revalue the acquired assets at current market value, then claim higher tax deductions going forward.

Cashflow

Since most mergers rely on exchanges of equity, ownership percentages change without large cash outflow. Cash-funded acquisitions reduce cash so have an impact on liquidity and leverage.

Stakeholder Impacts

Employees

Mergers tend to preserve employment terms more often than asset acquisitions.

Similarly, stock acquisitions usually preserve the employer relationship, but asset acquisitions may permit selective hiring or termination.

Owners and Stockholders

In mergers, stockholders may receive new equity and share in any new company upside.  Mergers require board and shareholder approval to reshape governance.

Acquisitions may produce cash-out for target owners or a mix of cash and stock.  Acquisitions often result in changes to board composition, voting control, and minority protections.

Customers

Asset acquisitions may trigger contract assignment clauses requiring customer consent.

Suppliers

If the buyer assumes payment obligations, suppliers may face renegotiation, consolidation of procurement platforms, or credit exposure.  Asset deals that leave payables with a seller can disrupt supplier cash flow.

Integration

Typically, following merger, integration can balance operational steadiness with speed.

However, post-acquisition integration often requires a lengthier, phased approach to avoid service disruption and/or operational shock (e.g., a risk-based plan that sequences legal, systems, people, and customer actions).

Most small-to-midsize companies are not well-versed in mergers and acquisitions; so it is critical to work with an experienced consultant…including not only getting you successfully to the “deal,” but also through the subsequent integration, and potentially even the selection and installation of the best IT solution to support the newly combined business.  Whether you are considering merging, buying, or selling, Visionary Growth Advisors partners with you to bring that expertise and guidance.