M&A is an acronym for the term “mergers and acquisitions,” which refers to the deliberate transfer of control and ownership of businesses organized in one or more corporations. M&A transactions are governed by contracts that are shaped by M&A regulations, by corporate law, finance, accounting and the business environment, and by fundamental economics of corporations, especially trade-offs between control and liquidity that influence patterns of ownership. Pursuant to these contracts, M&A may be consummated through various means, including the direct transfer of assets and liabilities, an acquisition of stock or other ownership interests in a target company or a merger of a target company into a buyer—or its subsidiary—by operation of law.
The key idea behind M&A is that two companies combined are more valuable than two separate companies. This notion is appealing to companies especially when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company and, theoretically, more shareholder value. On the other hand, target companies will often agree to be purchased when they know they cannot survive alone.
Generally, principal parties (i.e., buyers and targets) to M&A transaction rarely include individuals. In other words, transactions of these types usually involve corporate entities—whether it is a corporation, a limited liability, a partnership, etc. Moreover, the purchase price (i.e., or consideration) in these transactions may be in the form of cash, buyer stock, assets, or a combination of such, although cash would be the most common, since only publicly-listed companies are generally able to offer freely-tradeable securities.
Distinction between a Merger and an Acquisition:
A merger happens when two firms, often about the same size, agree to move forward as a single new company rather than remain separately owned and operated. This kind of action is referred to as a “merger of equals”. In such instances, both companies’ stocks are surrendered and new company stock is issued in its place. For example, both Exxon and Mobil ceased to exist when they merged in 1999 to become ExxonMobil, one of the most powerful companies in the world.
On the other hand, a purchase deal will be called an acquisition, when one company takes over another and clearly establishes itself as the new owner. From a legal perspective, the target company ceases to exist, the buyer absorbs the business and the buyer's stock continues to be traded while the target company's stock does not.
Please note that this article is for informational purposes only and does not constitute legal advice. If you have questions regarding your particular situation, please contact a qualified attorney.