A merger and an acquisition are technically different processes that can have a functionally similar effect. While a merger is the combination of two businesses into one new entity, an acquisition is the purchase of one company by another. In reality, mergers usually do not consist of simply adding together the resources and staff of two companies. One of the two pre-merger entities generally will take control of the post-merger entity, while the people involved in the other pre-merger entity may or may not continue working for the post-merger entity. In an acquisition, meanwhile, the buyer company completely takes over the purchased company, which may be liquidated. The post-acquisition entity keeps the same name as the buyer company, and its management usually remains the same as well.
If a merger or acquisition involves two companies in the same industry, antitrust issues may arise because this may undermine competition. However, this is a problem faced more often by large companies than small companies.
Valuing the Target Business
You should find out how much the other business is worth before you proceed with a merger or acquisition. If you take the time to understand how to value a business, you can handle it on your own, or you can hire a business appraiser to conduct an appraisal for you. You should be aware that there are several different ways to value a business, and you should make sure to understand the method used in a certain appraisal. If you are unsure about whether you can afford to buy the business, you can consider raising funding or crafting an agreement that allows you to gradually acquire the business.
Crafting the Agreement
An agreement for a merger or acquisition should take into account all of the assets and liabilities of the business being purchased or, in the case of a merger, both businesses. If the businesses are corporations, the agreement will provide for the purchase of stock, while otherwise it will provide for the purchase of assets. The agreement should specifically lay out the inventory involved in the sale as well as the way in which the business will be managed until the sale is complete. You may want to retain an attorney to review the agreement and make sure that any ambiguities are resolved, such as the form of ownership that the business will take.
Finalizing a Merger or Acquisition
Once a merger is complete, you likely will need to create a new entity after both companies have been dissolved. This will involve not only closing down your existing business but also going through the same steps with the new entity that you did when you first started your business. For example, you may not be able to transfer your licenses and permits from your original entity, so you may need to apply for new licenses and permits. You also may need to get new tax IDs for state and federal taxes. If you acquire another business rather than merging with it, you will not need to go through these steps because your business will simply absorb the purchased business.
For either a merger or an acquisition, you will need to notify the state of the changes to your business. This process will vary according to the state and the form that you have chosen.