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Mergers and acquisitions refers to the process of two companies coming together. While the terms are commonly seen together, mergers and acquisitions are actually two different things. It’s important to distinguish them and learn the basics regarding mergers and acquisitions. This way, you will be well equipped to know what path is best for your company.
Read on to learn more.
Mergers And Acquisitions In Australia
Mergers and acquisitions have largely been beneficial for the Australian economy. When they are successful, mergers and acquisitions improve efficiency, diversification and can combine the strength of two companies.
It’s common for businesses to choose this path, but it’s important to understand the differences between the two and what this will mean for you.
What Is The Difference Between A Merger And Acquisition?
Ultimately, both a merger and an acquisition result in two companies becoming one. However, the process and even the end result can be very different.
Let’s go through the key differences below.
What Is A Merger?
A merger occurs when two companies mutually agree to become one company. There are multiple different types of mergers, however, the main idea is that the companies combine with the intention of prompting the interest of what was formerly two separate companies.
What Is An Acquisition?
An acquisition, on the other hand, is when one company purchases another company, effectively acquiring that company. An acquisition can therefore be seen as more of a transaction.
When a basic acquisition occurs, the purchasing company is generally able to take over the company they have acquired. In some instances, they may choose to let it retain much of its originality or completely alter everything.
| Example When Formula One team Force India was acquired, everything identifiable about the brand was then changed to become Racing Point. |
What Laws Apply To Mergers And Acquisitions?
One of the main laws to apply to mergers and acquisition is the Australian Consumer Law (ACL). Mergers and acquisitions are perfectly legal and even good for the overall economy. However, some mergers and acquisitions deals can have the impact of reducing the competition in the market.
When two companies come together, they eliminate the competition they had with one another. With less competition, there is a risk of prices increasing and consumers having no other choice – the ACL strictly prohibits this.
If you are engaging in a merger and are unsure as to whether or not the merger will result in a reduction of market competition, it’s best to contact the Australian Securities and Investments Commission (ACCC) for an informal review.
Advantages And Disadvantages Of Mergers And Acquisitions
Merging or acquiring a company isn’t something that suits all circumstances. Before you decide to embark on this path, it’s good to take a look at a few of the advantages and disadvantages.
| Advantages | Disadvantages |
| Joining two companies together can lead to shared resources such as business contacts, skills, networking and knowledge. | When two companies merge, there may be a need for less of the same staff. As a result, some employees may lose their jobs. We’ve written about what happens to employees when this happens. |
| Depending on the type of companies and their respective locations, a merger or acquisition can lead to the company serving a much larger market. | Mergers and acquisitions are not simple legal processes. They can be very time consuming and require a lot of planning and work. As a result, the company’s activities may be impacted by delays during the process of a merger or acquisition. |
| Mergers and acquisitions can also result in talent being combined. For example, when two executives in their respective fields come together, an effective collaboration between them could achieve a lot more than one could have on their own. | Mergers and acquisitions can sometimes feel like starting over, especially when consumers are familiar with one brand. Once two companies have come together, the process of building an image and trust with consumers will likely need to be restarted at some level. |
What Is The Mergers And Acquisitions Process In Australia?
There is no defining process for mergers in Australia. It’s been left unrestrictive so companies have the option to cater their contracts and deals according to what fits them best, although this doesn’t mean a merger isn’t subject to any laws.
When creating a merger, it must respect other Australian regulations. For example, the terms of the deal cannot be unfair towards one party or contain any other illegal elements.
Even though the process of mergers isn’t strictly regulated, it often follows these basic steps:
- Market analysis and identification of the target businesses
- Evaluation of the business
- Making a proposition with the other business
- Carrying out due diligence
- Negotiation of the deal
- Carrying out the merger
The same rule tends to apply for acquisitions. There is no strict process laid out by the law. However, the general procedure will likely involve research, a proposal, negotiations and finally, the acquisition taking place.
Mergers And Acquisitions In The Technology Industry
Mergers and acquisitions have been rather prevalent in the technology industry. In fact, this process isn’t just for traditional businesses that want to acquire one another or join forces.
Mergers and acquisitions have been known to see success in the technology field. For example, one of the most commonly known acquisitions in technology was Facebook purchasing Instagram back in 2012.
More recently, Australian company Afterpay has been acquired by Square, another technology company. As of publishing this article, the deal has been announced but not finalised.
Key Takeaways
It’s important for business owners to understand their options when it comes to merging or acquiring companies. It’s good to bear in mind that while this can be an effective business strategy, it still needs to be in line with the ACL.
To summarise what we’ve discussed:
- Mergers and acquisitions are different, even though the terms are often used together
- A merger is two companies combining together
- An acquisition happens when one company purchases another
- According to the ACL, mergers should not disrupt the market unfairly
- There are multiple disadvantages and advantages to both mergers and acquisitions
- There is no strict process for mergers and acquisition demanded by the law, however many may follow a general one
- Mergers and acquisitions have been visible in the technology industry as well
If you would like a consultation on mergers and acquisitions, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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