Mergers can be beneficial for two companies of roughly equal size. They can open new markets and opportunities for both.
Be aware that merging means sacrificing a considerable amount of control. If you are used to making decisions on your own, negotiating every decision may be challenging.
If you have the financial means, acquiring the other company might be a better option. It allows you to retain complete control while benefiting from their experience, knowledge and client base.
What are the key differences between mergers and acquisitions?
A merger involves company A and company B joining forces. The idea is that the new company C is stronger than the original individual companies were. Here are some more aspects of a merger:
- Your old companies both cease to exist
- You will need to issue stocks for the new company C
- You will typically need a new name
- You should form a management team using staff from both companies
- You both need to give consent to merge
An acquisition requires that company A consumes company B. The stronger company takes over the weaker one. To do so, they must acquire at least 51% of their shares. Here is what will happen in an acquisition:
- The company doing the acquiring retains its original name
- The other company no longer exists, although the acquirer may choose to keep its name alive if it sees it as beneficial
- Employees of the acquired company no longer have a job, although the new owners may give them new ones
- No new stocks are issued
- The consent of both parties is not required
If you are the one someone is trying to acquire, it may not all be bad news. If the price is right, it could be the ideal chance to secure your future and leave behind the stress of running a business for good. Be sure your business contract spells everything out clearly whether you are merging, acquiring or being acquired.
