M&A are the transactions in which the ownership of companies, other business organizations or their operating units are transferred or combined. As an aspect of strategic management, M&A can allow enterprises to grow, shrink, change the nature of their business or improve their competitive position.
From a legal point of view, a merger is a legal consolidation of two entities into one entity, whereas an acquisition occurs when one entity takes ownership of another entity's stock, equity interests or assets. From a commercial and economic point of view, both types of transactions generally result in the consolidation of assets and liabilities under one entity, and the distinction between a "merger" and an "acquisition" is less clear. A transaction legally structured as a merger may have the effect of placing one party's business under the indirect ownership of the other party's shareholders, while a transaction legally structured as an acquisition may give each party's shareholders partial ownership and control of the combined enterprise. A deal may be euphemistically called a "merger of equals" if both CEOs agree that joining together is in the best interest of both of their companies, while when the deal is unfriendly (that is, when the management of the target company opposes the deal) it may be regarded as an "acquisition".
Corporate acquisitions can be characterized for legal purposes as either "asset purchases" in which the seller sells business assets to the buyer, or "equity purchases" in which the buyer purchases equity interests in a target company from one or more selling shareholders. Asset purchases are common in technology transactions where the buyer is most interested in particular intellectual property rights but does not want to acquire liabilities or other contractual relationships.[8] An asset purchase structure may also be used when the buyer wishes to buy a particular division or unit of a company which is not a separate legal entity. There are numerous challenges particular to this type of transaction, including isolating the specific assets and liabilities that pertain to the unit, determining whether the unit utilizes services from other units of the selling company, transferring employees, transferring permits and licenses, and ensuring that the seller does not compete with the buyer in the same business area in the future.
Structuring the sale of a financially distressed company is uniquely difficult due to the treatment of non-compete covenants, consulting agreements, and business goodwill in such transactions.