The terms Mergers and Acquisitions (M&A) are most often used interchangeably to describe the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. Nevertheless, in actuality, the two terms bear slightly different meanings. whilst Mergers refer to a situation where two firms of approximately the same size join forces to move forward as a single new entity, rather than remain separately owned and operated, Acquisitions refer to a situation when one company takes over another entity and establishes itself as the new owner.
Mergers & Acquisitions can take place:
In a corporate finance world, a list of transactions exists which invariably falls under the Mergers and Acquisitions umbrella:
In a merger, the boards of directors of two companies approve the combination of the said companies and seek shareholders’ approval. Post-merger, the acquired company ceases to exist and becomes part of the acquiring company.
In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its legal structure.
Consolidation of two companies creates a new company, whereby the stockholders of both companies must approve the consolidation. Subsequent to the approval, they receive common equity shares in the new firm.
In a tender offer, one company offers to purchase the outstanding stock of the other firm at a specific price. The acquiring company communicates the offer directly to the other company’s shareholders, thereby bypassing the management and board of directors. While the acquiring company may continue to exist, especially if there are certain dissenting shareholders, most tender offers result in mergers.
As the name implies, when one company acquires the assets of another company, such transaction would result in an acquisition of assets. The company whose assets are being acquired must first obtain approval from its shareholders. Indeed, the purchase of assets is typical during bankruptcy proceedings, where other companies bid for various assets of the bankrupt company, which is liquidated upon the final transfer of assets to the acquiring firms.
In a management acquisition, also known as a management-led buyout (MBO), a company’s executives purchase a controlling stake in another company, making it private. These former executives often partner with a financier or former corporate officers, in an effort to help fund a transaction. Such Management Acquisition transactions are typically financed disproportionately with debt, and the majority of shareholders must approve it.
Based on the relationship between the two companies involved in the deal, Mergers may be structured in multiple different ways, inter alia:
Moreover, from a legal standpoint, there are other different types of mergers, namely:
On a national plane, the most common business combinations are the following:
The legal framework for Mergers and Acquisitions in Malta is comprised of a number of laws and regulations which seek to regulate various aspects that may be involved in Mergers and Acquisitions transactions. Nevertheless, the Companies Act, (Chapter 386 of the Laws of Malta) is the principal legislation regulating Mergers and Acquisitions of companies in Malta.
The said Act predominately regulates the consolidation of public and private limited liability companies, as well as the unification of companies in the form of a merger by formation of a new company and a merger by acquisition of a company by another which holds 90 % or more of its shares. It also establishes the manner in which the consolidation of local companies may be carried out, the procedure, reports as well as any approval that is required for the implementation, formalisation and efficacy of every type of merger.
It similarly regulates any legal and commercial relationship between the parties involved in a Merger. However, it is vital to point out that takeover bids of public limited liability companies whose securities are admitted to trading on a regulated market are not catered for in the Companies Act but are principally regulated by Chapter 11 of the Listing Rules as published by the MFSA.
There are also various other laws which are applicable to Mergers and Acquisitions relating to employment, competition and financial market abuses namely, the Competition Act (Chapter 379 of the Laws of Malta), the Employment and Industrial Relations Act (Chapter 452 of the Laws of Malta), the Prevention of Financial Market Abuse Act (Chapter 476 of the Laws of Malta) as well as the Civil Code (Chapter 16 of the Laws of Malta).
Indeed, the raison d’etre behind Mergers and Acquisitions generally given is that two separate companies together create more value compared to being on an individual stand. In fact, with the objective of wealth maximization, companies keep evaluating different opportunities through the route of merger or acquisition.
