Merger vs. Acquisition: Key Legal Differences You Should Know

When it comes to growing a business, mergers and acquisitions (M&A) are often strategic tools that can accelerate success. However, while these terms are frequently used interchangeably, they represent distinct business transactions with different legal structures, processes, and outcomes. 

In October 2024, the Federal Trade Commission (FTC) updated merger-filing requirements to streamline the clearance process. This change aims to accelerate evaluations by separating deals that require more scrutiny from those that can proceed with fewer hurdles.

Understanding the legal difference between a merger and an acquisition is essential for compliance, risk reduction, and business success. 

Definition and Overview of Mergers

When two companies merge, they form a new entity with shared ownership and leadership, usually requiring mutual consent and approval from shareholders and regulatory bodies. The merged company assumes the assets and liabilities of both firms. There are three main merger types: horizontal, vertical, and conglomerate. Each merger type has a purpose.

• In horizontal mergers, companies in the same industry merge to gain market share.
• Vertical mergers improve supply chain management by involving production companies.
• Conglomerate mergers combine unrelated firms to diversify risk.

Merger success depends on integration and goal alignment. Understanding these dynamics will help you solve merger and growth issues.

Definition and Overview of Acquisitions

An acquisition occurs when one company purchases another’s assets, shares, or control. Acquisitions can drive expansion into adjacent markets, new technologies, or increased resources. Unlike mergers, where two companies combine, acquisitions involve one company absorbing another. Acquisitions can be friendly or hostile, and they are often motivated by factors like expanding market share, product line diversification, or improving competitiveness.

Understanding acquisition dynamics is key to navigating growth strategies and making informed business investment decisions.

The Importance of Legal Help

Legal help is crucial in mergers and acquisitions (M&A) to deal with complex legal requirements, ensure compliance, and protect the interests of all parties involved. Lawyers assist with drafting and negotiating contracts, conducting due diligence to identify potential risks, and ensuring the transaction complies with regulatory requirements like antitrust and securities laws. 

A lawyer from Axelrod & Associates says that a lawyer could also help protect intellectual property, employee rights, and shareholder interests. Additionally, legal experts support post-merger integration, ensuring a smooth transition and minimizing disputes. 

Overall, legal assistance helps prevent costly mistakes, ensures the deal’s success, and safeguards the involved companies' interests.

Legal Process and Requirements for Mergers

Legally merging two companies is complicated and requires certain steps.

First, both companies must conduct thorough financial, legal, and operational due diligence.

Then they must create a merger agreement with terms, structure, and timeline.

Generally, shareholders must approve the merger, so you need to prepare meetings to solicit votes.

Regulatory approval is also crucial, especially if antitrust laws will be invoked based on merger size and market impact.

To complete the merger, you must file the necessary documents with state and federal agencies after receiving all other approvals.

Following these steps should ensure legal compliance and reduce litigation risk.

Legal Process and Requirements for Acquisitions

An acquisition transaction requires several legal steps to ensure a smooth transition.

Due diligence is performed on the target company's finances, legal issues, and operations to identify risks and liabilities.

Next, negotiations determine the acquisition price and payment terms. The parties will sign the acquisition agreement, which includes all terms and conditions.

The extent and nature of the acquisition may require regulatory approvals to comply with antitrust laws.

Transferring assets and integrating operations completes the acquisition. 

Impact on Stakeholders and Corporate Governance

Employees, shareholders, customers, and suppliers are affected by acquisition completion.

Employees may face job changes or relocation and insecurity. Shareholders' investments are affected by stock price changes. Customers usually see product, price, and service changes after acquisitions. Suppliers may negotiate new terms or see less demand.

A new executive leadership structure changes corporate governance. Policymaking can be affected by decision-making changes.

Deal-making and acquisition also increase transparency, accountability, and stakeholder trust.

Conclusion

Successfully managing these complex processes requires understanding the legal differences between mergers and acquisitions. Acquisitions involve buying another company and transferring assets, while mergers create a new entity that requires major shareholder approval and regulatory compliance. When you understand the differences, you can deal with the issues and risks of both approaches, making the transition easier for everyone.