Mergers & Acquisitions

The phrase mergers and acquisitions refers to the aspect of corporate strategy, finance, and management involving the purchase, sale, or integration of different companies. The purpose is often to aid, finance, or help a company with rapid expansion or other market opportunities without having to create another business entity.

There are 15 different types of actions that a company can take when deciding to move forward with an M&A. Usually mergers occur in a consensual (occurring by mutual consent) setting in which executives from the target company help those from the purchaser in a due diligence process to ensure that the arrangement is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target’s Board of Directors. In the U.S., business laws vary from state-to-state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the ‘poison pill,’ in which actions are taken to ensure prior to the acquisition that make the target entity or arrangement less attractive.


Historically, mergers have often failed to add significantly to the value of the acquiring firm’s shares. Corporate mergers may be aimed at reducing market competition, cutting costs (such as laying off employees or operating at a more technologically efficient scale), reducing taxes, removing management, or other purposes, which may or may not be consistent with public policy or public welfare. Thus, mergers can be heavily regulated and require approval by the Federal Trade Commission, the Department of Justice, or other agencies.

The U.S. began regulations on mergers in 1890 with the implementation of the Sherman Act. It was meant to prevent any attempt to monopolize or conspire to restrict trade. However, based on the loose interpretation of the standard ‘Rule of Reason,’ it was up to the judges in the U.S. Supreme Court whether to rule leniently.


An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target’s Board of Directors has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.

M & A Exit Strategies