How a Merger between Two Companies Usually Happens and How the Process Looks

A merger happens when two or more corporations come together to create one business entity. Normally, this assists the companies to attain greater success by taking advantage of their resources and strengths. The final details and structures are different according to each agreement. However, in normal circumstances, companies combine their liabilities and assets in order to improve their financial situations.

Mergers and Acquisitions

Merger and acquisition is a term normally used to explain the consolidation of firms. Whenever two corporations come together to form one unit, it is referred to as a merger. On the other hand, an acquisition is the purchase of one company by the other. Acquisitions and mergers are crucial components when it comes to strategic management. The aim is normally to maximise profits, get a bigger proportion of the market share and help the companies grow faster.

For example, in Malta, business combinations are normally structured in different ways with the most common ones being:

  • Shares transfer
  • Merger by acquisition
  • Subscribing to new issues of shares
  • Agreements based on joint ventures
  • Merger by the creation of a new corporation

Acquisition Parties

  • The target firm/company- is the corporation getting acquired
  • The acquirer company- firm acquiring the target

In case of a merger by acquisition, the acquirer company gets access to all the liabilities, rights, assets and obligations of the target firm. This makes the shareholders of the target firm become the acquirer’s shareholders.

Types of Mergers

Mergers are normally divided into 3 types:

  • Horizontal Merger

This takes place when both the corporations deal with the same kind of business, which means that they are competitors.

  • Vertical merger

In this case, the companies are in the same kind of business but at different production stages. A good example is how Microsoft acquired Nokia in order to support its software and offer the required hardware for their smartphones.

  • Conglomerate Merger

This kind of merger happens to companies that are in different lines of business and in most cases, such mergers happen to spread risks and diversify when the current business cannot yield enough profits.

Before companies can merge, they need to consult a merger and acquisition attorney since the process can be complicated. There are many legal, financial and structural aspects that need to be evaluated and negotiated before the merger can go through. A company like GTG Advocates helps companies finalise mergers smoothly by offering legal advice.