As a business leader, it can be tempting to merge and grow larger quickly, acquire competitors and take on more market share. However, without the proper strategic compatibility between companies, these deals can stall and even lead to disaster. This article explores the complexities of business acquisition, while offering a balanced examination of their pros and cons.
Mergers are one of several types of business combinations, including consolidations, stock and asset acquisitions, and mergers of equals. A merger is the simplest of these types, involving two separate legal entities merging into one unified entity. Generally speaking, the constituent entities of a merger cease to exist as soon as the transaction is completed and are absorbed into the surviving entity.
A merger of equals involves a company buying a competitor that is roughly the same size, or at least of similar proportion. This type of acquisition can be a powerful tool to gain market dominance, but it is often subject to antitrust laws and regulatory concerns. For example, the AT&T purchase of Time Warner (now WarnerMedia) was a merger of equals that allowed AT&T to gain access to a massive media content library and build unique bundles of services.
A stock acquisition is a business takeover in which a company acquires a majority of the outstanding shares of another company through one of several statutory methods. Often, the acquiring company purchases the entire company, but it can also purchase just a portion of the company through a subsidiary or holding corporation. This is usually referred to as a stock purchase merger or an equity purchase merger.