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Text document with red question mark. Some of this article’s listed sources may not be reliable. Please help this article by looking for better, more reliable sources. Unreliable citations may be challenged or deleted. A can allow enterprises to grow or downsize, and change the nature of their business or competitive position. From a legal point of view, a merger is a legal consolidation of two entities into one entity, whereas an acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets.
Specific acquisition targets can be identified through myriad avenues including market research, trade expos, sent up from internal business units, or supply chain analysis. Look up merger in Wiktionary, the free dictionary. Whether a purchase is perceived as being a « friendly » one or « hostile » depends significantly on how the proposed acquisition is communicated to and perceived by the target company’s board of directors, employees and shareholders. A deal communications to take place in a so-called « confidentiality bubble » wherein the flow of information is restricted pursuant to confidentiality agreements. Acquisition » usually refers to a purchase of a smaller firm by a larger one. This is known as a reverse takeover.
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. A transactions appears to be positive: almost all studies report positive returns for the investors in the combined buyer and target firms. The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.
The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. The terms « demerger », « spin-off » and « spin-out » are sometimes used to indicate a situation where one company splits into two, generating a second company which may or may not become separately listed on a stock exchange. As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate.
Extracting technological benefits during and after acquisition is ever challenging issue because of organizational differences. Improper documentation and changing implicit knowledge makes it difficult to share information during acquisition. For acquired firm symbolic and cultural independence which is the base of technology and capabilities are more important than administrative independence. Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high performing. Management of executives from acquired firm is critical in terms of promotions and pay incentives to utilize their talent and value their expertise. Transfer of technologies and capabilities are most difficult task to manage because of complications of acquisition implementation.
The risk of losing implicit knowledge is always associated with the fast pace acquisition. An increase in acquisitions in the global business environment requires enterprises to evaluate the key stake holders of acquisition very carefully before implementation. It is imperative for the acquirer to understand this relationship and apply it to its advantage. Employee retention is possible only when resources are exchanged and managed without affecting their independence. Corporate acquisitions can be characterized for legal purposes as either « asset purchases » in which the seller sells business assets to the buyer, or « equity purchases » in which the buyer purchases equity interests in a target company from one or more selling shareholders. Structuring the sale of a financially distressed company is uniquely difficult due to the treatment of non-compete covenants, consulting agreements, and business goodwill in such transactions. Mergers, asset purchases and equity purchases are each taxed differently, and the most beneficial structure for tax purposes is highly situation-dependent.