Midstreet mergers & acquisitions? (2023)

What is the difference between a merger and an acquisition?

Mergers combine two separate businesses into a single new legal entity. True mergers are uncommon because it's rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs. Unlike mergers, acquisitions do not result in the formation of a new company.

Mergers and acquisitions (M&As) are the acts of consolidating companies or assets, with an eye toward stimulating growth, gaining competitive advantages, increasing market share, or influencing supply chains.

Mergers and acquisitions can make companies stronger by expanding their consumer base, reducing marketplace competition and creating value that is greater than each company offers individually.

Mergers and acquisitions (M&A) is a generally used term to describe the process of combining companies through various types of transactions. The most popular one is an acquisition, where one company buys another and transfers ownership. You can do two kinds of acquisitions; a stock sale and an asset sale.

There are four main types of acquisitions based on the relationship between the buyer and seller: horizontal, vertical, conglomerate, and congeneric.

Companies may undergo a merger to benefit their shareholders. The existing shareholders of the original organizations receive shares in the new company after the merger. Companies may agree for a merger to enter new markets or diversify their offering of products and services, consequently increasing profits.

Mergers and acquisitions mean greater financial strength for both companies involved in the transaction. Having greater economic power can lead to higher market share, more influence over customers, and reduced competitive threat. In most cases, bigger companies are harder to compete against.

Hence, considering the above benefits of mergers and acquisitions, these strategies are very popular. The market value of the resulting company formed as a result of merger and acquisition gains a much better market share making it eligible to survive in case of challenging situations in the market.

Historically, mergers and acquisitions tend to result in job losses. Most of this is attributable to redundant operations and efforts to boost efficiency. The threatened jobs include the target company's CEO and other senior management, who often are offered a severance package and let go.

Are company mergers good for employees?

Benefits of Mergers for Employees

On the positive side for employees whose companies are undergoing mergers, those that manage to stay the course stand to experience an uptick in their career prospects. Mergers create larger companies and, on balance, larger companies create more opportunities.

As of December 2022, the acquisition of Mannesmann AG by Vodafone Air Touch PLC in 1999 was the largest all-time merger and acquisition (M&A) deal with transaction value amounting to 202.8 billion U.S. dollars. It is also one of the oldest transactions on the list.

A merger is a business deal where two existing, independent companies combine to form a new, singular legal entity. Mergers are voluntary. Typically, both companies are of a similar size and scope and both stand to gain from the transaction.

For a high-growth company, acquisitions fundamentally boil down to one of three types: (1) team buy, (2) product buy, or (3) strategic buy.

An acquisition is a transaction whereby companies, organizations, and/or their assets are acquired for some consideration by another company. Some examples of acquisitions include: Google's $50 million acquisition of Android in 2005. Pfizer's $90 billion acquisition of Warner-Lambert in 2000.

Epstein (2005) proposed six determinants of merger success: due diligence, strategic vision and fit, deal structure, pre-merger planning, external factors, and post-merger integration.

Guide to Antitrust Laws

Section 7 of the Clayton Act prohibits mergers and acquisitions when the effect "may be substantially to lessen competition, or to tend to create a monopoly." The key question the agency asks is whether the proposed merger is likely to create or enhance market power or facilitate its exercise.

The merger & acquisition process is very complex, yet can be broken down into four phases: due diligence, agreement, integration, and value attainment.

What is the most common type of merger?

1. Vertical Merger. Vertical mergers are simple and common. It's done to combine two companies that provide similar or common goods or services, in an effort to bring together different supply chain functions that either organization might operate with.

The merger agreement often provides that compensation and benefits will be maintained at existing levels for a defined period, typically one year but sometimes as long as two years. This allows for some time to assess the compensation and benefit programs at the newly acquired business and develop an action plan.

Mergers and acquisitions can qualify as either taxable or non-taxable. Taxable mergers are mergers where both companies assume tax liability. When two companies merge, they pay taxes on gains from the capital, stock, or assets acquired during the merger.

As of August 2022, the largest ever acquisition was the 1999 takeover of Mannesmann by Vodafone Airtouch plc at $183 billion ($297.7 billion adjusted for inflation). AT&T appears in these lists the most times with five entries, for a combined transaction value of $311.4 billion.

A merger can reduce competition and give the new firm monopoly power. With less competition and greater market share, the new firm can usually increase prices for consumers.

Financial reasons mergers fail to add value

Overvaluation: When mergers and acquisitions cost billions, mistakes can not only cripple an acquiring company financially by committing its capital reserves, but a high-profile failure can seriously damage a brand's reputation among shareholders and other stakeholders.

Answer and Explanation: Mergers are helping customers in terms of prices, quality, services, and new products.

Value destruction, poor communication and integration, and cultural differences are some of the most common reasons. If these issues are not addressed, it can be very difficult to make a merger or acquisition a success. Lastly, another common reason for failure is that the two companies simply are not compatible.

Unfortunately for most parties involved, no. A contract cannot survive the death of either party unless it's assigned under a corporate agreement (such as stock purchase agreements)--which has its own set of issues--or if the contract is supported by consideration produced before the termination.

What is the average employee turnover after a merger?

During M&As, the focus tends to be on getting the top leadership team in place. But a recent EY report suggests that 47% of key employees leave a company within a year of the transaction and that 75% leave within the first three years.

The only employees who receive anything in this case are a few senior members of management who typically receive a small share (less than 10%) of the proceeds from the investors as an incentive to stick around and get the company sold. Seldom do rank and file employees ever see any money in this scenario.

A merger or acquisition is coming

Layoffs are often a natural outcome of merger and acquisition activity. When two companies come together, there may be overlap in some areas, leading to the decision to eliminate positions. Not every merger leads to layoffs, and in some cases, companies add new jobs when they merge.

Three of the top reasons why employees leave after a merger or acquisition are mistrust of leadership, job insecurity, and disliking the new company culture.

The new employer is answerable and under the terms of such transfer where the new employer is legally liable to pay to the employee in case the employee retrenches, compensation on the supporting condition that the service of the employee has been continuous and has not been interrupted by the transfer.

The difference between a merger and an acquisition is that: a merger is the combining of two or more companies into a single corporate entity, whereas an acquisition involves one company (the acquirer) purchasing and absorbing the operations of another company (the acquired).

An acquisition is a business transaction that occurs when one company purchases and gains control over another company. These transactions are a core part of mergers and acquisitions (M&A), a career path in corporate law or finance that focuses on the buying, selling, and consolidation of companies.

: the act of acquiring something. acquisition of property. the acquisition of knowledge. : something or someone acquired or gained.