What Are the Mergers and Acquisitions (M&A): A Full Guide

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Commercial & Corporate Law

Hunter Boone

Hunter has been a part of the Sequoia Legal team since 2017.  Hunter handles general corporate matters, healthcare compliance, international trade laws, and anti-kickback regulations.

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merger & acquisition

Mergers and acquisitions (M&A) play a vital role in the strategic growth and expansion of businesses. Company leaders considering the purchase of another business or seeking to merge with a separate entity should fully understand the intricacies and implications of mergers and acquisitions.

In this comprehensive guide, we will delve into M&As, exploring the process, benefits, and considerations involved. Whether you are a business owner, an investor, or a shareholder of a target company, our mergers and acquisition lawyers in Colorado are here to provide you with the knowledge and support you need.

What Is a Merger?

What Is a Merger?

A merger occurs when two separate corporations or companies decide to create a new business entity. Although the resulting corporation can be a wholly new entity, it is also common for one of the companies to be incorporated into the other company.

After some mergers, the companies combine their names to preserve brand recognition. For example, when oil powerhouses Exxon and Mobil Oil merged, they became ExxonMobil. When General Electric’s National Broadcasting Company and Vivendi’s Universal Entertainment merged, the resulting new company was NBCUniversal.

There are many incentives for top companies to merge:

  • Higher market share and greater financial strength for both companies.
  • Access to the best talent in the industry.
  • Access to vendors, suppliers, and materials.
  • Access to facilities, machinery, equipment, and real estate.

Mergers may be subject to state corporation laws, long-standing federal securities laws (such as the Securities Act of 1933 and the Securities Exchange Act of 1934), and SEC and regulatory filings.

Usually, merging companies have a roughly similar size, scale, and brand awareness level. Even if there are a lot of details to be worked out, mergers are generally friendly transactions as both parties agree to join forces.

What Is an Acquisition?

What Is an Acquisition?

An acquisition is not the joining of forces (as with a merger); instead, one company takes over another. The acquired company dissolves and becomes part of the new company.

Typically, a smaller company is acquired by a larger one in a strategic move.

The company that attempts the acquisition might have the following goals for the purchase:

  • Reducing operational costs.
  • Acquiring top talent.
  • Increasing market share or customer base.
  • Making use of more efficient supply chains.
  • Gaining control of certain assets that would be challenging to acquire independently.

Sometimes, the acquired company is small and obscure. Other times, the acquisition involves two large, well-known companies and is widely discussed in the media.

Google’s 2006 acquisition of YouTube is a famous example of one large company purchasing another. But since its founding, Google (or Alphabet, its parent company) has acquired over 250 companies from diverse sectors, most of them much smaller than YouTube.

Main Differences Between Mergers vs. Acquisitions

The primary difference between a merger and acquisition of companies is the size of the companies involved relative to each other. Mergers, as the M&A business term is commonly used, involve companies of similar sizes. They are sometimes described as marriages of two businesses.

An acquisition is more typical when a larger company acquires a smaller company. In many cases, this move is friendly. Sometimes, however, the smaller company is opposed to the purchase.

Merger Acquisition
Transaction Two companies combine to form a new business. One company acquires another company.
Mutual Consent Both parties agree to join forces. May not be mutual / could be hostile.
Could force employees to relocate or accept layoff packages.
Organizational Name A new name is formed, may be a combination of both company’s former branding. The former company may still operate under their business name, or may be forced to operate as part of the new company.
Corporate Structure Similar size and scale businesses merge. A larger company acquires a smaller company.
Executive Power Power is shared between the two companies, although there may be shifting of executive roles. The acquiring company is in charge.
Ownership Shares New shares may be issued. New shares are generally not issued.

Mergers and Acquisitions Examples

Mergers and acquisitions of companies are common events, and finance newspapers like the Wall Street Journal and business news media like CNBC cover M&A activity in depth.

However, many people outside of finance are not aware of the complex nature of M&A deals and why some deals are tremendously successful while others have disastrous outcomes.

Over the years, you may have heard of many successful mergers and acquisitions — and some that were less successful. Modern examples include:

Mergers Examples

  • 1997: Boeing and McDonnell Douglas merged under the Boeing name.
  • 1998: Daimler-Benz and Chrysler merged to become DaimlerChrysler (Daimler later divested from Chrysler).
  • 1998: Exxon and Mobil Oil merged to become ExxonMobil.
  • 2000: AOL and Time Warner merged to become AOL-Time Warner (AOL later split from Time Warner).
  • 2008: XM Satellite Radio and Sirius Satellite Radio merged to become Sirius XM.
  • 2013: American Airlines and US Airways merged to become American Airlines Group.
  • 2013: Office Depot and OfficeMax merged under the Office Depot name.
  • 2015: H.J. Heinz Company and Kraft Foods Group merged to become Kraft Heinz.
  • 2018: Westar Energy and Great Plains Energy merged to become Energy.

Acquisitions Examples

  • 2005: Starbucks acquired Ethos Water.
  • 2008: Wells Fargo Bank acquired Wachovia Corporation.
  • 2010: United Airlines acquired Continental Airlines.
  • 2012: Starbucks acquired Teavana.
  • 2014: Facebook acquired WhatsApp.
  • 2016: Alaska Airlines acquired Virgin Airlines.
  • 2017: Amazon acquired Whole Foods.
  • 2018: Google acquired Waze.
  • 2018: PepsiCo acquired SodaStream.
  • 2019: Boeing acquired ForeFlight.
  • 2021: Uber acquired Drizly.
  • 2022: Oracle acquired Cerner.

Mergers and Acquisitions (M&As): Forms of Integration

Mergers and Acquisitions (M&As): Forms of Integration

The result of an M&A can look very different from one deal to the next, depending on the way the businesses are integrated.


A statutory integration occurs when an acquirer is much larger than the target (e.g., Google or Amazon acquiring a small tech startup). After the transaction, the target company no longer exists as a separate entity.


A subsidiary acquisition occurs when a larger company acquires a smaller business that continues to run independently. For example, Coca-Cola has acquired several subsidiary businesses in the beverage industry, including Minute Maid, Fuze Beverage, Odwalla, and Honest Tea.


A consolidation merger occurs when two companies merge and form a single new entity. For example, Verizon, the largest wireless carrier in the United States, formed when Bell Atlantic and GTE merged in 2000. The resulting company was named Verizon Communications, which eventually reorganized to be simply Verizon.

Types of Mergers and Acquisition (M&A) Transactions

Types of Mergers and Acquisition (M&A) Transactions

Below are nine of the main types of M&A transactions:

1. Horizontal Merger

A horizontal merger involves two competing companies that produce the same products. The companies combine forces in order to grow market share and increase profits. A well-known example is the 2002 merger between Hewlett-Packard and Compaq.

2. Vertical Merger

A vertical merger involves two companies that are not direct competitors and do not produce the same product or service. Instead, the companies are separate links in the same supply chain.

Ebay's 2002 acquisition of PayPal is a well-known vertical merger. M&A vertical mergers are often followed by post-merger integration (PMI), the process of combining or rearranging business interests to increase efficiency and maximize financial benefits.

3. Conglomerate Merger

A conglomerate merger involves two companies that operate in different industries — such as tobacco giant Phillip Morris's 1970 merger with Miller Brewing (it later sold Miller Brewing to South African Breweries).

Walt Disney Company's 1995 merger with the American Broadcasting Company (ABC) is another example of a conglomerate merger. These large mergers are less common and tend to be more complicated than horizontal or vertical mergers.

4. Congeneric (Concentric) Merger

If companies have different products or services but operate in the same industry, a congeneric merger can make sense. For example, a gas company and an electric utility company can merge to provide one integrated energy service.

5. Product Extension Merger

Product Extension Merger

Two companies that offer similar products or services can combine in a product extension merger. The merger allows the companies to share resources and reduce operating costs while expanding their customer base. PepsiCo's 1977 acquisition of Pizza Hut and 1978 acquisition of Taco Bell are commonly cited examples of product extension mergers.

6. Market Extension Merger

A market extension merger involves two companies that offer similar services but operate in different markets. For example, an airline with routes on the West Coast might merge with an airline with routes on the East Coast. The companies combine their resources to grow and increase profits.

7. Acquisition of Assets

One company can purchase specific assets of another company, often during bankruptcy proceedings. For instance, a company in financial distress might sell its intellectual property or a particular product line to another company.

8. Management Buyout (MBO)

A management buyout (MBO) is the acquisition of a company by its existing management team. In an MBO, the managers pool resources or secure financing to purchase the company they are currently working for.

For example, high-level managers who are unhappy with recent leadership decisions might combine their resources to purchase the company from its current owners.

9. Tender Offer

A tender offer is a public offer made by one company to the shareholders of a target company to purchase stock. This offer is usually made at a premium to the current market price. Often, the tender offer is made in an effort to gain a controlling interest in the target company.

Type of M&A Transaction Description
Horizontal Mergers Combination of companies in the same industry
Vertical Mergers Merger between companies in different stages of the supply chain
Conglomerate Mergers Merger between companies in unrelated industries
Market Extension Mergers Merger that seeks to expand into new markets
Product Extension Mergers Merger that involves adding new products to existing product lines
Congeneric (Concentric) Mergers Merger between companies with complementary products or services
Acquisition of Assets Purchase of specific assets from another company
Management Acquisition (MBO) Purchase of a company by its existing management team
Tender Offer Public offer to purchase shares of a target company

Why Are Mergers and Acquisitions So Popular?

Mergers and acquisitions have gained popularity due to their ability to drive growth, expand market presence, and increase competitiveness.

Create Synergies

In the context of M&A deals, synergies are the potential financial benefits of a transaction. For example, Starbucks' acquisition of American tea company Teavana allowed it to increase revenue by providing customers with a wider product selection. Synergies can also involve geographical expansions, such as when utility companies in neighboring states merge.

Accelerate Growth

A merger or acquisition can accelerate growth far beyond what a company can do organically. For example, Google's acquisition of YouTube is widely seen as a very successful acquisition that has resulted in impressive growth. YouTube remains a major contributor to parent company Alphabet's massive annual revenue.

Increase Market Power

A strategic acquisition can put a company in a much better position in the marketplace. However, market conditions can change rapidly. Understanding forecasts for products and market sectors is critical — and time must be spent in the due diligence phase to ensure that outside forces won't destroy a deal.

Third-party mergers and acquisition transactions involving competitor businesses can also impact a business.

Diversify Offerings

Diversification of offerings is an attractive goal for many companies. Amazon's acquisition of Whole Foods in 2017 put the e-commerce giant in the grocery business. Netflix's acquisition of two gaming studios, Next Games and Night School Studio, positioned the streaming giant to move into gaming opportunities.

Not all diversification acquisitions are successful. Mergers and acquisition transactions that are made impulsively — without the knowledge of how to operate in a different market — can be risky.

The Quaker Oats Company’s 1993 acquisition of Snapple for $1.7 billion is often cited as one of the worst merger and acquisition flops. Quaker sold Snapple four years later for just $300 million, a price that analysts at the time called “generous.”

Provide Tax Benefits

Provide Tax Benefits

M&A transaction analysts are quick to observe opportunities in which savvy buyers can make strategic acquisitions to receive economic benefits. For example, an analyst might predict that the losses of one business could level the balance sheet of a profitable company.

But while they appear to be win-win on the surface, these deals may not be permissible under tax law. U.S. Code § 269 states that an acquisition may be disallowed if its principal purpose is to evade or avoid tax.

Some types of mergers can be tax-free if they are structured as reorganizations. However, stock deals and asset deals are taxable. The tax implications of an M&A deal should be thoroughly considered before execution.

What Is the Mergers and Acquisitions Process?

The merger and acquisition process is a structured journey that involves the following four phases:

1. M&A Pre-Deal Phase

The M&A process starts with the pre-deal phase. This stage includes strategic planning and assessment; the acquiring firm evaluates its growth objectives and identifies potential targets or partners in the market.

Preliminary negotiations and confidentiality agreements are established to protect sensitive information and lay the foundation for further discussions. Then, the due diligence process begins.

2. Due Diligence

Due diligence involves a thorough examination of the target company's financial, legal, and operational aspects. This process helps identify any potential risks or liabilities that may affect the successful integration of the two entities.

Company leaders rely on due diligence to assess the value of the target business and determine whether the companies will be compatible.

3. Deal Execution Phase

Deal Execution Phase

After the potential purchaser completes due diligence, the companies will take part in further negotiations on pricing and value. The parties will attempt to determine the fair value of the target company and establish the terms for the acquisition.

Once the terms are agreed upon, the deal terms are negotiated, including the consideration to be paid to the target company's shareholders. Finally, the merger or acquisition agreement is drafted and signed, legally solidifying the transaction and establishing the new entity resulting from the deal.

3. Post-Deal Integration

Post-deal integration involves ensuring a smooth transition as the acquired firm and buyer merge. Integration planning plays a key role in determining how the newly combined entity will operate.

Implementation and integration challenges may arise as the companies’ distinct processes, cultures, and systems come together. It is essential to address these challenges proactively.

Ongoing monitoring and evaluation of the M&A’s success are crucial to ensure that the integration efforts yield the desired results. Successful post-deal integration leads to the creation of larger, more efficient, and more profitable companies that can thrive in the competitive business landscape.

M&A Legal and Regulatory Considerations

Legal and regulatory considerations play a significant role in the M&A process. All parties must ensure that the merger or acquisition aligns with applicable laws and regulations, including legal concerns regarding antitrust laws, shareholder rights, and contractual obligations. Company leaders who do not comply with these laws could face heavy fines or even prison time.

Additionally, forming a new legal entity through the merger or acquisition requires meticulous attention to detail and adherence to regulatory requirements. By carefully navigating the legal and regulatory landscape, the two separate businesses can merge successfully and form a new legal entity poised for growth and success.

Mergers and Acquisitions: Common Pitfalls

Mergers and Acquisitions: Common Pitfalls

During mergers and acquisitions, organizations should be aware of these common pitfalls:

  • Culture Clashes: Merging companies often have different cultures, which can lead to conflicts and hinder integration efforts.
  • Integration Challenges: Integrating systems, processes, and teams can be complex and time-consuming, posing challenges to a smooth transition.
  • Poor Due Diligence: Inadequate or rushed due diligence can result in unforeseen risks and financial implications.
  • Lack of Communication: Insufficient communication with employees and stakeholders can create uncertainty and resistance during the merger process.
  • Unrealistic Expectations: Failing to set realistic expectations and goals can lead to disappointment and hinder the merger’s success.

By identifying and addressing these pitfalls, organizations can enhance their chances of a successful and smooth merger or acquisition.

Merger and Acquisition Professionals Can Help You Merge Two Brands

Business leaders who are considering strategic growth and expansion must be able to access skilled, knowledgeable advice.

At Sequoia Legal, our experienced mergers and acquisition lawyers in Colorado are ready to assist you. From structuring the legal entity to conducting due diligence and negotiating with target companies, we have the knowledge needed to support a smooth M&A transaction. Contact us today to leverage our knowledge and make your M&A goals a reality.

FAQs: Mergers and Acquisitions Transactions

What is a hostile takeover?

A hostile takeover is an unwanted purchase in which one company acquires (or attempts to acquire) another against the wishes of the target company. Kraft Foods' acquisition of Cadbury in 2009 (when Cadbury was not for sale) is a frequently cited example of a hostile takeover.

How are acquisitions financed?

Acquisition transactions can be financed with stock, with cash on hand, through acquisition financing (e.g., a traditional loan or a line of credit), through seller financing, or with the assumption of debt.

How does M&A activity affect shareholders?

Shareholders can benefit from M&A deals, especially when the transaction is an all-cash acquisition and shareholders can cash out at a premium. In some cases, an M&A transaction may be executed specifically for the benefit of shareholders. Depending on the governing laws where the transaction occurs, shareholders may need to vote to approve a deal. Sometimes, shareholders take an aggressive stance against deals, depending on their perception of the price or the market for other deals.

How long does the M&A process take?

The timeline for the M&A process depends on how complex the deal is, how much due diligence is needed, and whether shareholder approval is required. Because M&A deals are one-of-a-kind transactions with many unique variables, time frames are often unpredictable. The process can be slowed for months or years when regulatory approval is required.

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Power Your Growth with Confidence: Business Law at Sequoia Legal

Schedule your consultation today and get expert legal guidance for your business in Denver.

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