M&As or mergers and acquisitions is a prevalent term in the business fraternity. However, it is important to note that this term also describes multiple financial transactions such as consolidations, mergers, acquisitions, purchase of assets, tender offers, and management acquisitions.
Apart from that, mergers and acquisitions are technically not the same business transactions, and M&As for public and private companies are also pretty different.
In the following text, you will be able to learn about M&As for private businesses. Before that, let’s get a basic understanding of mergers and acquisitions and how it works.
The Difference Between Mergers And Acquisitions
The acquisition is a financial transaction in which a company simply purchases another company. It can happen in different ways. For example, the target company can open gates for acquisition and sell the business to the highest bidder, which is usually called a friendly takeover deal.
On the contrary, a company may purchase a significant or decisive number of shares of the target company and force its ownership rights. Buyers, in friendly acquisitions, usually don’t change the names and organizational structure of acquired businesses.
In mergers, two companies combine and usually create a new business entity and work under a different name or banner. Mergers take place when boards of directors and shareholders of both companies agree to merge.
When two companies merge, they combine their financial, managerial, and human resources to achieve shared goals, and the organizational structure usually remains the same.
You can also get more M&A insights and stay updated with the latest merger and acquisition news on mnacommunity.com.
Mergers And Acquisitions In Private Businesses: Why Are They Different?
Mergers and acquisitions in private companies are very much different than in public corporations. Here are some major differences.
Public companies are listed on local or national stock exchanges, and their shares are traded in the stock market. Anyone can buy and sell public company shares easily. In other words, public company shares have high liquidity.
On the contrary, private companies’ shares are not sold or purchased on the stock market. In fact, private companies are usually owned or run by one or a very limited number of stakeholders.
To sum it up, the ownership of public companies falls into many hands because a person owning one share of a public company has ownership rights. While in private companies, ownership rests in few hands.
The senior management in public and private companies is different in many ways. When we talk about public companies, the directors are elected by the shareholders through transparent elections.
Moreover, management in public companies is vastly experienced in corporate leadership roles and that too in different industries. Also, depending on the size of the company, the management is larger in size, and decisions are made after getting input from everyone.
In private companies, the management is usually smaller in size, and the expertise or skills may not be up to the mark. In fact, just one person that holds a major share in the company can enforce decisions, leading to biased or unthoughtful decisions.
3. Disclosure Of Information
Disclosure of corporate information is another major difference during mergers and acquisitions. In the case of public companies, it is a legal obligation for them to disclose important company data needed for due diligence.
That data may include audited and unaudited financial statements, licenses, agreements, incorporation certificates, articles of association, memorandum of association, tax details, disclosure of assets, etc.
There are no such obligations for private businesses, and it usually depends on the owners — how willing they are to disclose their corporate information.
Valuation is not a problem in mergers and acquisitions of public companies, as they usually come with ready-made valuations. That said, public companies usually quote their deal price publicly. Although the deal price may go up or down during the transaction, it at least provides a starting point.
In the case of private mergers and acquisitions, there are usually no ready-made valuations because financial statements are not disclosed publicly. Moreover, as private companies are usually not traded on stock markets, their liquidity is quite low.
5. Financial Statements
Any business entity, small or large, public or private, prepares and manages financial statements, but the quality varies greatly. For example, public companies in many countries are legally bound to get their financial statements audited by registered auditing firms.
Public companies have to follow global accountancy practices such as GAAP and IFRS. Moreover, all the financial statements are easily reachable to the general public.
There are no such obligations for private companies. For instance, it is optional for a private company to get its financial statements audited by certified professionals or make those statements available publically. Also, private businesses usually practice cash accounting, while public companies adopt accrual accounting methods.
Mergers and acquisitions in private companies are very fairly different from public companies. A private company cannot be acquired forcefully unless the owners agree to sell it.
In comparison, a public company can be acquired by buying a decisive number of shares without the approval of management.
It is safe to say that private mergers and acquisitions are more difficult, which is why their peculiarities should be thoroughly studied and considered.