MERGERS & ACQUISITIONS (M&A)
“Mergers and acquisitions” (M&A) refers to the different transactions that result in the consolidation of companies and/or assets. M&A includes the following:
- Merger: A merger is a transaction in which the boards of directors of each company approve the plan, and then solicit approval from company shareholders. After approval, the acquired company ceases to exist and becomes a part of acquiring company.
- Acquisition: An acquisition is a transaction in which Company A gains a majority stake in Company B, while Company B doesn’t change its name or structure.
- Consolidation: A consolidation is a transaction in which both companies cease to exist, and a new company is created given that shareholders of each company approve the plan. Once the company is created, shareholders of the old companies receive common stock in the new entity.
- Tender Offer: A tender offer is a transaction in which Company A offers to buy the outstanding stock in Company B at a defined price. Company A makes this offer to Company B’s shareholders, not the management or board of directors. While tender offers don’t necessarily result in mergers, most tender offers do eventually result in merger events.
- Acquisition of Assets: An acquisition of assets is a transaction in which Company A acquires the actual assets of Company B. This sort of transaction is common during bankruptcy proceedings, wherein Company A bids on the assets of Company B following Company B’s declaration of bankruptcy.
- Management Buy-Out: A management-led buyout (MBO), is a transaction in which the executives of a company make it a private company by buying a controlling stake in the company. These sorts of acquisitions are less common, and are typically financed by mostly debt.
Mergers & Acquisitions selection at Investopedia