Also known as M&A (mergers and acquisitions), it represents the action of a company acquiring another one, for various reasons. The structure of this action breaks down the enterprise value.
There are three main types of M&A processes: stock purchase, asset purchase and merger.
Stock purchase: In this situation, the buyer acquires the stock of the target company from its stakeholders. The buyer has now ownership of all assets, liabilities and intellectual property. During negotiations both parties will get to a common point, and the purchased company will continue as it existed before the acquisition with respect to its ownership. Besides the initial intention of the buyer to grow their business through this acquisition, there are also several risks that anyone should pay attention to, such as: not being able to properly integrate the two companies, overpaying, inheriting financial and legal problems from the purchased company, and so on.
Asset purchase: the buyer only acquires the assets and the liabilities expressly stipulated in the purchase agreement. This is applicable when someone wants to buy a single business unit or a division within a company. By doing this, a company can acquire and assume only the desired assets and liabilities. Any transaction of this type also comes also with risks, such as renegotiating contracts, buyers can lose non-transferable assets, and sellers need to pay close attention to taxes.
Mergers: represents the action of having two distinct companies joining together and forming a single legal entity. It needs the approval a shareholder majority in the target company, and the shareholders can get either stock, cash, or both. In terms of structure, the involved parties can create a new entity, or one of the two companies will be reconstituted – meaning that all assets and liabilities will now be transferred to the new ownership. One crucial detail to consider when it comes to mergers is the stakeholders' position and the possibility of them disapproving the decision.