The difference between merger, acquisition and sale of a business

Sales and acquisitions are terms in the business context that people confuse and sometimes even mistake for mergers. These are business transactions that encompass the consolidation of companies or the acquisition of their assets, incorporating a variety of approaches and dealings. However, they are all different from each other.

Merger

A business merger is the easiest to differentiate from the other two because it is when two companies combine to form one new business entity. The businesses usually have similar proportions and scale but want to grow together as one unified front.

Acquisition

An acquisition is when one company takes over another company. However, a company that acquires all or most of another company’s assets usually intends to keep both companies active and running. An acquisition can involve purchasing the other company’s assets and restructuring ownership. It can also happen when the acquirer buys at least 51% of the company’s shares. Typically, one larger entity acquires a smaller business.

Sale of a business

Selling and buying a business is the most fundamental of the three. It is when a company buys the business assets and takes on the liabilities of another company. The business might be worth more than you think. Therefore, you must obtain a proper valuation. If you are the one purchasing the assets and assuming the liabilities, you also would not want to spend too much. While selling a business is more straightforward and usually quicker than a merger and an acquisition, it can be complex to negotiate a fair market value for the business assets.

Before making any significant financial transactions, you must ensure that you have full knowledge of all the legal repercussions. You should also know the exact valuation of what you are acquiring, selling, buying or forfeiting so you can negotiate the most beneficial outcome. Most importantly, make sure a contract legalizes every agreement.