In the corporate world restructuring is part of doing business. There are investment bankers working daily to arrange transactions to advance some type of merger and acquisition.
It is designed to bring different companies together as a way to form a better company. These are deals that can be valued in the billions of dollars. They will determine the success of companies long into the future.
A number of different transactions can involve mergers and acquisitions. This includes mergers, management acquisitions, tender offers, consolidations as well as the purchase of assets and more.
These transactions are structured between two companies. They will often involve one company expressing a desire to acquire or join another company. This could involve purchasing the company in its entirety or paying for some of the other company’s assets and more.
This requires the board of directors from two different companies to be in agreement to become one company. The board of directors will try and obtain approval from their shareholders. Once the merger is complete, the acquired company will no longer exist. It will now be part of the company that acquired it.
This is when the management of one company buys a controlling stake in another company. This will make the new organization a private enterprise. In this situation, it’s a transaction that is often financed out of proportion according to debt. This also requires approval by the majority of a company’s shareholders.
In this deal, a company will offer to buy the outstanding shares of stock from another company at a certain price. The company to be acquired will explain the details of the offer to their shareholders. The company will bypass its management as well as board of directors. The company that is acquired could remain in existence. If there are too many shareholders who disagree with the tender offer, the transaction could turn into a merger.
This agreement will create a new company from two existing companies. The stockholders from each of the companies involved must approve this transaction. The deal will result in the shareholders receiving equity shares in the new company.
Increased Value Generation
A company will have a greater value generation after experiencing a merger or acquisition. The shareholder value of a company after this transaction is usually greater than the value of the parent company. Mergers and acquisitions will create cost efficiency using the method of economic scale.
A merger or acquisition is able to generate significant tax gains for both companies. In many cases, it’s able to increase revenue and decrease the cost of capital. Internal Revenue Code (IRC) 368 provides details for a tax-free reorganization.
When a company is struggling, a merger or acquisition could be a way to endure a difficult time. A company could be suffering from many different problems in their market. They may not be able to get past the problems on their own. It may be able to survive with an acquisition agreement. When one company is well established in an industry and purchases a similar business, they can both benefit. The purchasing company will increase their market share. The other company will be able to be part of a larger company and may continue operating.