Businesses change hands for a lot of reasons. It could be that a business has invested in another and wants to take over its assets or two businesses are combining to become one. Regardless, you will hear terms such as mergers, consolidations, acquisitions, and amalgamations. Although these terms are used interchangeably and can be confusing, they are different, with each of them coming with its own nuances. Below, we will look at mergers and consolidations, as well as the other two related terms.
Mergers happen when two businesses merge to become one. Under a merger, a company (the survivor company) accepts all of the second business’ assets and liabilities. The second company then shuts down and no longer exists and the survivor company gets to keep its name.
Mergers can be complicated, especially because of the assets and liabilities, and that is why businesses or corporations that want to merge consult with reputable law firms such as Cline Jensen, PLLC. An experienced lawyer can advise businesses and help them overcome the challenges and hurdles that come with completing a successful merger.
Consolidation happens when two companies or businesses merge to form a new business. The new business, the successor, assumes all the assets and liabilities of the two businesses that have now become one. In consolidations, no one business shuts down but there are some effects such as laying off redundant staff or people with the same tasks and responsibilities.
An acquisition is when a business takes over another business without consolidating or merging with it. This is often done by the first business buying over 51% of the second business’s stock.
Acquisitions also come with asset acquisition, which is where the first business purchases most or all of the second business’ assets. However, when a business acquires another, it does not necessarily assume all of the second business’ liabilities.
Amalgamation happens when a larger business takes over one or more businesses. Amalgamations can happen through mergers, acquisitions, or consolidation. Each of the businesses acquired enters in a separate contract or agreement with the new parent company depending on how it was taken over.
Why Mergers, Acquisition, and Consolidations Happen
There are several reasons why businesses choose to combine with or purchase other businesses. The most common reason is the creation of a stronger, better company. When two businesses become one, the new business becomes a bigger player in the market. They can use the combined capital, assets, and human resources to dominate a market.
Another reason is to eliminate competition. When a second business that was previously a direct competitor ceases to exist, the surviving company does not have to worry about it.
Financing is another reason why this happens. A bigger company, one with more assets, is usually in a better position to find financing than a smaller business. On a related note, a bigger company is also able to negotiate better deals with clients and suppliers.
Businesses merge, are acquired, or absorbed into other businesses all the time. The way this is done will depend on the agreement between the two companies with the result being a merger, acquisition, consolidation, or amalgamation.