A corporate merger, by definition, is a combining of corporations in which only one of the corporations survives. Corporate mergers are authorized and governed by the statutes and regulations of the state in which the corporation is formed. Other business entities, such as limited liability companies, can merge as well, but this article will primarily discuss corporate mergers.
This article will provide a brief overview of certain taxable transactions and the ramifications in M&A transactions, including those certain tax-deferred reorganizations under §368 of the Internal Revenue Code. Often, due to the fact that the taxes are deferred under IRC §368, these M&A transactions are referred to as “tax-free.”
Many business owners (or prospective business owners) interested in buying or selling a business may often fail to realize the importance of how a merger or acquisition transaction is legally structured. The legal structure of the merger or acquisition of a business can take three forms: (1) an asset purchase transaction; (2) a stock purchase transaction; or (3) a statutory merger. This article will discuss the first two. The structure of each respective form carries with it certain benefits and drawbacks when buying or selling a business; these vary depending upon the competing interests of the purchaser and seller as each party’s objectives vary.
The following article will include some of the ways to approach valuations in the mergers and acquisitions setting, as well as some of their strengths and weaknesses.
The main idea behind any M&A transaction is the creation of value for the shareholders that goes beyond the current value of either company apart from each other, or for one company to gain a market advantage by the acquisition of another company. Through the M&A transaction, the company or companies aim to create a more competitive advantage to their business, while also increasing profits by becoming more cost-efficient or boosting sales.