Entrepreneurs and corporate officers, alike, frequently use the terms “merger” and “acquisition.” To the general public, these words are simply those that are seen on headlines of national business newspapers and articles. Many may wonder about the true definitions of these words and which businesses are undergoing a merger and which businesses are undergoing an acquisition.
A merger, by definition, refers to the combination of two or more firms to form a new company, either by amalgamation or by absorption. Amalgamation is defined as a unification process in which two or more companies decide to carry out business together as one. Absorption is defined as when two or more companies wish to fuse together, though operate as an existing business. An example of a merger is the recent combination of Fortis Healthcare India with Fortis Healthcare International. The two companies merged to consolidate local and overseas operations and now operates as Fortis.
A common question that arises is, why do businesses merge? Simply put, most companies merge in an effort to make more money. Money is the driving force behind all businesses and, if two companies are able to work together to cut down on costs and generate higher revenues, then it would be beneficial for them to merge. Another underlying reason as to why businesses merge is to decrease competition and increase operational efficiency.
Acquisitions are another common way for businesses to generate higher revenues. An acquisition, by definition, is when one business entity purchases another business entity. The purpose of an acquisition is similar to a merger, in which the purpose is to increase the flow of money into the business. Acquisitions are typically used for instantaneous business growth. A recent acquisition was between Amazon and Whole Foods. The online retailing giant purchased the health food grocery chain in order to break into the food industry and become a major contender within it.
Most large business decisions that involve financial or operational aspects should be discussed with an experienced corporate law attorney before making any final and permanent decisions. The attorneys at Wingate, Kearney & Cullen, LLP have handled many corporate and business law matters on behalf of their clients. For more information or to schedule a consultation, call (718) 852-5900.