An acquisition occurs when a company purchases all or substantially most of another company’s shares thus gaining control of the target firm. Purchasing more than 50% of the target firm allows the acquirer to make controlling decisions about the newly acquired assets. The previous shareholders will no longer have a say in the decision regarding the use of those assets if they were paid in cash. If they accepted the acquirers stock for the purchase of their shares, they will continue to have a say in the enlarged entity as ownership would be continuous.
In this instance, the deal may be referred to as a merger but in a legal sense might not necessarily be so. When large public companies are acquired, they are sometimes referred to as mergers (as opposed to acquisitions) to soothe the negotiations. Whereas in reality, they are simply acquisitions. An acquirer can have a number of reasons for acquiring another firm. We explore the three broadly arranged areas of corporate strategy in horizontal mergers, vertical mergers and conglomerate mergers with various subsets in each field in separate articles.
Acquisitions in Practice
Acquisitions are very common in the business world. They frequently occur with the target company’s approval and are known as friendly deals. In these instances, there is often a no-shop or go-shop clause during the deal making process. If the target Board of Directors does not approve the deal, it may still proceed but becomes known as a hostile takeover. These deals often exhibit wider merger arbitrage spreads to compensate for the additional risk that the deal may not consummate.
Once the acquisition is announced, the target stock generally rises substantially and trades at a slight discount to the offer price. This is the uncertainty that the deal may not consummate as expected even in a friendly takeover. By analysing the risks involved in the deal completion, traders can employ a merger arbitrage trading strategy to gain from this spread. Merger Arbitrage Limited produces a list of the largest cash deal merger spreads each week that traders can use to research potential investments.
An Example Acquisition
The acquisition of the Meet Group (MEET) by ProSiebenSat.1 was announced by a press release on March 5, 2020 and a simultaneous filing of an 8-K with the SEC.
NEW HOPE, Pa.–(BUSINESS WIRE)–The Meet Group, Inc. (NASDAQ: MEET), a leading portfolio of mobile dating apps, today announced that it has entered into a definitive agreement to be acquired by ProSiebenSat.1`s and General Atlantic’s joint company NuCom Group in an all cash transaction for $6.30 per fully diluted share representing an enterprise value of approximately $500 million. Together with NuCom Group’s portfolio company Parship Group, a matchmaking platform with its brands Parship, Elite Partner and eharmony, The Meet Group will become an integral part of a global leader in the online dating and social entertainment sector.
The document goes on to reveal further details of the deal and where to obtain additional information. Press release announcements such as this one can be found at our dedicated Cision PR Newswire press release news feed and our Business Wire press release news feed focusing on the latest M&A deals. Merger Arbitrage Limited also produces a global mergers and acquisitions news feed available for wider M&A coverage.
