An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may consist of purchasing 100%, or nearly 100%, of the assets or ownership equity of the acquired entity.
Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies remains independently.
Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. “Serial acquirers” appear to be more successful with M&A than companies who only make an acquisition occasionally.
“Acquisition” usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually one with no business and limited assets.
The combined evidence suggests that the shareholders of acquired firms realize significant positive “abnormal returns” while shareholders of the acquiring company are most likely to experience a negative wealth effect. The overall net effect of M&A transactions appears to be positive: almost all studies report positive returns for the investors in the combined buyer and target firms. This implies that M&A creates economic value, presumably by transferring assets to management teams that operate them more efficiently.
There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications:
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