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Mergers and acquisitions: two different business dealings

Most people in Louisiana these days have heard of the terms "merger" and "acquisition" in connection to business dealings, although they may not know exactly what the difference between these terms is. While the terms "merger" and "acquisition" are often used interchangeably these days, technically they are two different business transactions. A merger takes place when two separate business combine in a way that creates an entirely new business entity. The consolidated new business entity has a new owners and a new management structure.

An acquisition, on the other hand, takes place when one business takes over the other one. In an acquisition, the end result is not a new entity. Instead, the business that was taken over no longer exists, as it has been made a part of the acquiring business.

The term "acquisition" can have a negative connotation. Often, if a business purchase is friendly, it will be referred to as a merger, and if a business purchase is hostile, it will be referred to as an acquisition. True mergers of equals are rather rare, as it is not usually the case that two equal businesses would benefit from consolidating, as the leaders of the businesses would have to relinquish some of their power over the business and the business' stocks would be surrendered.

Moreover, because true mergers usually do not take place and the term "takeover" is not always seen in a positive light, for practical reasons a business dealing in which the two businesses will be restructured will be called a "merger and acquisition" instead of differentiating between the two terms. That being said, if a business is interested in combining with another business, each business may want to seek legal advice so they can better understand their options and what the final result of these complex business transactions would be.

Source: Investopedia, "What is the difference between a merger and an acquisition?," Feb. 18, 2015

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