Merger, Amalgamation, Acquisition, Joint Venture

The process of reorganising one or more components of a firm capital structure is known as corporate restructuring. Reorganising a company can be carried out for a variety of reasons, including surviving a present economic downturn, positioning the brand to be more competitive, or acting on the corporation’s self-confidence to move on an entirely new path. The corporate restructuring process can be accomplished using a variety of methods. These methods include amalgamation, merger, acquisition, joint venture, etc. The below article discusses the fundamental concepts of amalgamation of companies and types of mergers and acquisitions in detail. 

Merger

A merger is a business restructuring technique that allows two companies to merge and operate as one legal entity. The companies that agree to merge are usually comparable concerning the scope and size of activities. 

Different Types of Mergers

There are several types of mergers which are as follows:

Vertical Merger

Whenever the merging and merged companies run in the same type of business but at distinct levels of the supply chain, this is known as a vertical merger. The main reason for this is to obtain economies of scale.

Congeneric Merger

It’s a form of a merger in which two companies operate in the same or related industry or marketplaces but don’t sell the same items. These companies usually merge to boost market share and extend product lines since they share common distribution networks, production methods, or overlapping technology, among other things.

Triangular or Reverse Merger

A merger in which a parent company combines with a subsidiary or a profitable company merges with a losing one. A triangular merger is another name for it.

Horizontal Merger

Whenever a merging and a merged company are in the same line of business and supply chain level, they are almost always rivals. This type of merger is called a horizontal merger. The merger is usually done to expand the client base, increase shares in the market, and market strength, among other things.

Conglomerate Merger

The merger of companies that operate in diverse industries. This type of merger occurs to diversify and disperse risk in the event that the current firm is not profitable.

Amalgamation

An amalgamation is a form of merging. The Income Tax Act of 1961 (ITA) defines amalgamation as the merging of one or more companies with another business or combining two or more companies to establish a single company. The result of amalgamation is the formation of a wholly new corporation. The companies involved in amalgamation are similar in size. The corporations participating in the merger process, on the other hand, are distinct since an absorbing company is expected to be bigger than an absorbed business.

Acquisition

The acquisition is a procedure of takeover in which a company is purchased by an acquiring firm with the intention of incorporating the purchased business into its operations. Merger acquisitions both are ways to consolidate companies. However, mergers are the joining of two firms to form a single entity, whereas acquisitions are the taking over of one company by another.

Types of Acquisition

Acquisitions can be classified into different types and the following are two types of acquisition of many which are as follows:

Unfriendly Acquisition

When the target firm refuses to agree to the takeover, the acquiring corporation must obtain majority ownership to force the deal through. A tender offer is usually used to complete this type of acquisition. In a tender offer, the company tries to buy shares from the target company’s outstanding shareholders at a higher price than the current market price. The shareholders are allowed a limited time to accept the offer.

Cooperative or Friendly Acquisition

When one firm buys another, and the board of directors of both companies approve the deal, it’s known as a friendly takeover. This is because it operates for the mutual benefit of both companies. Both the management and the shareholders agree on both ends of the arrangement in a friendly acquisition.

Joint Venture

A joint venture is a partnership among multiple businesses, usually to launch a new commercial venture. Each party contributes assets to the joint venture and decides how income and expenses will be shared.

A group of individuals, firms, persons and corporations can all participate in the joint venture. Most importantly, each entity maintains its legal position. A contract details the resources, like properties, money, and other assets, that each organisation will bring to the endeavour. It forms the basis of a joint venture. The contract also specifies how the business will be operated. Also, it outlines how ownership of the venture, as well as incomes and losses, would be distributed.

Conclusion

Corporate restructuring can aid in the restoration, preservation, and enhancement of an organisation’s value. For example, when a company is taking a downturn and losing money, it is time to restructure. It can be accomplished through various methods, like a merger, acquisition, amalgamation, joint venture, etc. In developed and free economy countries, the process of restructuring through amalgamations and mergers is a common occurrence. The above article unpacks the basic concepts of these corporate restructuring tools in detail.