Mergers and Acquisitions


A merger occurs when two or more companies combine into one while all parties involved mutually agree to the terms of the merger. Mergers are commonly voluntary and involve stock swap or cash payment to the target. A stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal.
A reverse merger occurs when a private company that has strong prospects and is eager to raise public financing buys a publicly listed shell company, usually one with no business and limited assets.
An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. This is accomplished either through the purchase of shares, and therefore control, of the target company or through the purchase of the assets of the target company. In this instance, the cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. Acquisitions can often be friendly but may also be hostile, meaning that the acquired company does not find it favorable that a majority of its shares was bought by another entity.
A merger or acquisition may dictate a mandatory action or offer voluntary participation to the shareholder, oftentimes with multiple options. The entire event process can take months and will typically involve position changes, settlement, and distribution.