Company mergers and company acquisitions (M&A) are actions aimed at increasing revenue and capital accumulation. They involve the combination of companies, which is a common phenomenon in both the Polish and international markets.
M&A typically results in the creation of stronger and more profitable organizations. It allows for reducing operational costs, increasing revenues or market share, and enhancing the overall value of the company. The merger of companies can occur through their consolidation and the formation of a new entity (a merger) or through acquisition, also known as incorporation. Find out what constitutes comprehensive merger support and how our law firm can assist you.
What is a Company Merger?
A company merger takes place when two companies come together to form a new company with a single shareholding structure. These are typically entities with similar market positions. Through a company merger, a new legal entity is created by combining the assets and forces of two businesses.
In most cases, an equal division is employed. Therefore, both companies’ stakeholders retain similar influence over the management, operations, and policies of the new company. However, it can happen that one of the original entities retains a larger ownership percentage in the new company.
Why Do Companies Merge?
A company merger is an excellent option for businesses looking to combine their unique expertise and specialized knowledge.
This results in an entirely new business entity, offering various benefits for entrepreneurs, such as increased profits, a larger market share, reduced layoffs, and product diversification. Capital grows, improving financial liquidity and making it easier to obtain credit, loans, or leasing. It also simplifies the management structure as M&A strengthens the position of the management team.
The primary advantage of a company merger is, therefore, the profitability of such a solution. Other reasons why entrepreneurs opt for company mergers include:
- Increased efficiency
- Cost reduction
- Expanded business reach
- Increased company value
- Potential for limiting employee layoffs
- Pursuit of new investments
- Enhanced competitiveness
- Opportunities for product line diversification or combination
- Better utilization of market opportunities
- Dynamic company growth
- More efficient utilization of a company’s resources
- Opportunities to expand the company’s specialized knowledge (know-how)
Benefits of M&A Processes
Both company mergers and company acquisitions allow companies to reach new customers or enter new markets, including international ones. Additionally, diversifying products or services helps companies become less dependent on market instability in their primary sector.
Moreover, M&A makes businesses less vulnerable to market mechanisms, price fluctuations, and unfair competition practices. Many entrepreneurs also aim to have their structures acquired by companies with more advanced and costly technology.
Furthermore, in the manufacturing industry, company mergers and acquisitions enable the elimination of margins and fees. This is possible when combining companies creates a comprehensive structure responsible for the entire trade process, from product manufacturing to delivery to customers.
Company Merger: How Does It Work?
A company merger occurs when two companies with similar market positions recognize that their combination and the creation of a new legal entity will yield greater profits than operating as separate entities. During a company merger, significant restructuring and changes in corporate activities and management personnel usually take place.
The company merger process typically unfolds as follows:
- The process of merging companies begins with obtaining formal, official consent from the relevant corporate authorities, who decide to proceed with the merger.
- Subsequently, the boards of the merging entities develop a merger plan and report justifying the company merger. They also prepare balance sheets for both companies as of a chosen day of the month preceding the day of presenting the merger plan to the companies’ stakeholders.
- The next step involves determining the value of both companies’ assets.
- The shareholders’ assemblies of both companies pass resolutions approving the merger and prepare or amend the company’s articles of association.
- Finally, the management of the company submits merger resolutions, along with an application to register the companies’ merger in the National Court Register (KRS).
As a result of a company merger, two main legal consequences, as indicated in Article 494 of the Commercial Companies Code (KSH), occur:
a) The acquiring company or the newly formed company enters into all rights and obligations of the acquired company or the companies merging through the formation of the new company as of the merger date.
b) As of the merger date, the shareholders of the acquired company or the companies merging through the formation of the new company become shareholders of the acquiring company or the newly formed company.
This means that companies merging through the formation of the new company are dissolved on the day of their removal from the register, without the need for liquidation proceedings.
Differences Between Company Mergers and Acquisitions
How does a company merger differ from a company acquisition? Both solutions involve the merging of companies. Although these terms are often used interchangeably, each results in different consequences.
- A company merger occurs when two companies come together to create a new entity. Typically, these are two companies with similar market positions. They usually maintain similar influence over the management, operations, and policies of the new company.
- On the other hand, a company acquisition involves one company acquiring the assets of another. In this case, a stronger company “absorbs” a weaker one and retains dominant influence over the company’s operations. The shareholders of the acquired company (or shareholders) receive shares (or stock) in the acquiring company. The acquired company ceases to exist and is dissolved.
Company acquisitions can occur through the purchase of shares or stakes in accordance with the Commercial Companies Code, or through the purchase of assets that make up the company. Reverse company acquisitions are also possible, where the shareholders or stockholders of the acquired company take over control of the acquiring company.
Both company acquisitions and mergers do not have a fixed character. In each situation, procedures for merging companies need to be individually planned and executed, depending on not only the positions of both companies but also their target industry, customers, and technological level.
| company acquisition | company merger |
|---|---|
| It involves the purchase of one company by another and the takeover of control over it. | It involves the merger of companies with similar market positions. |
| The acquiring company continues its operations, while the acquired company ceases to exist. | Two companies combine their capital and create an entirely new entity. |
| The leadership in the acquiring company remains unchanged. | Mergers often involve leadership restructuring within the company. |
Types of Company Mergers
There are several types of company mergers, with the three most important being:
- Horizontal Mergers: These involve the combination of two companies from the same sector. The goal is to increase market share. However, they can also involve companies from different sectors looking to expand their operations and competitiveness. An example can be seen in the restaurant industry, where brands merge to reach a larger customer base.
- Vertical Mergers: This type of merger involves the combination of two firms participating in the production of the exact final product but operating at different stages in the supply chain. An example of a vertical merger is the combination of The Walt Disney Company with Pixar Animation Studios.
- Conglomerate Mergers: These mergers involve the combination of two companies from different industries and unrelated types of economic activity. Conglomerate mergers allow for business diversification and reduce exposure to risk.
Company Merger or Company Acquisition with RPMS
Company mergers and company acquisitions are complex and multifaceted processes. In both cases, various factors need to be considered, including the company’s legal status and compliance with legal regulations.
It’s worth entrusting these processes to a law firm specializing in comprehensive M&A support. RPMS oversees and coordinates all procedures related to company acquisitions and mergers. As part of transactional advisory, you’ll receive:
- Exhaustive information about financial terms, business and legal situations, and potential risks that will be beneficial during negotiations with investors.
- Support from specialists who can help you define an M&A plan, identify business objectives, and intentions.
- Data on the entire sector’s functioning, enabling the creation of a long-term business development strategy.
Law firm assistance in the transactional process allows you to plan the entire M&A process without relying on chance. Our services in this regard also include:
- Valuation of companies participating in M&A to determine their true value.
- Comprehensive due diligence to assess the mutual capabilities of the companies to determine whether the merger or acquisition is financially beneficial.
- Assistance in drafting Sales and Purchase Agreements (SPA), which are crucial elements of the M&A process.
- Support in business carve-outs, focusing on M&A for only a part of the corporate structure.
- Development of M&A financing strategies, including external financing models, such as through bank funding.
- Compliance – implementation and updating of appropriate policies and procedures during M&A transactions.
- Post-Merger Integration – a complex, multifaceted process that helps achieve the set goals of a merger or acquisition.
- Support in resolving disputes that may arise during or after the transaction.
- Legal and tax services in the realm of M&A.
- Development of an optimal strategic cost management model.
RPMS Law Office
Staniszewski & Partners
Staniszewski & Partners
