If your company has decided the best way to grow is to expand your ownership boundaries, you are probably considering either a merger or an acquisition. Both are convenient, quick ways to grow and they both have advantages and disadvantages. But the legalities and tax outcomes of these two transactions can be very different.
First, here are the basic differences between the two types of transactions:
Once you get past the basic differences, focus on the big picture: What you hope to achieve by combining your operations with those of another company? Among the goals commonly considered are:
Gaining an immediate foothold. Your company can instantly step into an appealing geographic market, or start a new line of business without the uncertainty, expense and time involved in starting from scratch.
Benefiting from size. Larger companies find it easier to obtain favorable financing, attract new equity investors, and craft more-advantageous deals with vendors and suppliers. Some people simply take larger businesses more seriously. Being bigger also levels the playing field with competitors and gives a company more margin for error during economic downturns.
While mergers and acquisitions can be compelling, there are potential pitfalls. Consult with an M&A professional about:
Obtaining a valuation of the target company
Due diligence to help ensure you avoid any unanticipated liabilities
Advice on compensation packages for valuable employees you wish to retain at the target company
Help with ideas that are important to consider before drafting new non-compete agreements.
© Copyright 2016. All rights reserved.