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The Difference between Mergers and Acquisitions

Although similar, mergers and acquisitions are two distinctly separate types of transactions. A merger is where the equally-sized merging organizations surrender their shares and issue new shares for a new, combined company.

However, a merger of true equals is quite rare. One firm often purchases and assumes ownership of the other. In some cases, the acquirer will create a Merger Sub for the transaction, a non-operating legal entity that acts as an investment vehicle for the acquirer. The Merger Sub will then merge with the target.

Many small targets are acquired as an asset purchase rather than a formal acquisition if the target firm’s accounting practices are not in compliance with Sarbanes-Oxley or the acquiring firm lacks the resources for a full due diligence. After the asset purchase transaction, the target company will often exist without active operations to pay off remaining bills before dissolution and the distribution of remaining funds to shareholders.

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Term SheetThe First Boom and Bust Cycle ‘82-’92
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