Acquisitions: When an acquiring company buys a portion of a target company.

Merger: When an acquiring company buys all of a target company; the acquirer remains and the acquired no longer exists as an independent corporate entity.

Integration Forms

M\&A transactions can be segmented by the manners in which the acquired is integrated with the acquirer.

• Subsidiary Merger: the target becomes a subsidiary of the acquiring company.  The acquiring company may use this form of integration in order to retain the brand recognition of the acquired entity.

• Statutory Merger: the acquired no longer exists; it becomes part of the acquirer.

• Consolidation: neither the acquired, nor the acquirer remain, rather both combine to form a new company.

Merger Types

• Mergers can also be described by the way the business operations of the acquirer and the target relate to one another.

• Horizontal Mergers: the combination of two companies in the same business line.  For example, one beverage production company may decide to purchase another beverage production company.

• Vertical Mergers: the purchase of a target company which performs an upstream or downstream function in the acquirer’s industry value chain.

• Backward Integration: the acquirer purchases a company closer to the raw material extraction phase of the industry value chain.  For example, a natural gas commercial distributer may decide to purchase a natural gas miner.

• Forward Integration: the acquirer purchases a company closer to the market delivery phase of the industry value chain.  For example, a gold miner may decide to purchase a chain of retail jewelry stores.

• Conglomerate Merger: this is the case where an acquirer purchases a company in an unrelated line of business.  For example, an airplane manufacturer may decide to purchase a chain of hospitals.

Reasons for M\&A

Ideally, mergers are executed with the expectation that the target will increase the equity value of the acquirer.  Below some common merger motivations are described.