The Different Types of Mergers & Acquisitions Transactions Explained

While “merger” and “acquisition” are frequently used interchangeably, they are two different things. We want to clarify the differences while offering an overview of the types of mergers & acquisitions (M&A) you may have heard about but do not fully understand.

Mergers & Acquisitions Explained

A merger occurs when two companies conjoin into a single entity. These deals can be friendly or hostile.

Friendly mergers are generally collaborative—both companies work together, negotiate the terms, and work together for the greater good. The reasons behind the merger vary. In some cases, both companies may merge to increase market share. In other cases, they may wish to outpace competition or become more efficient and profitable.

Hostile mergers occur when the target company does not agree to the merger. Hostile takeovers happen for many reasons—because the acquiring company has circumvented the target company’s board or management and convinced enough shareholders to sell their shares, the company shares are publicly traded, and so on.

An acquisition is when one company takes over another company and becomes the new owner.

Types of Mergers & Acquisitions

Since we already covered “mergers” and “acquisitions,” let’s dive into more specific examples of typical M&A deals.

Consolidations

Consolidations occur when two companies (or in some cases more) agree to combine their core businesses. While they may blend their assets, the old companies become their own entities.

Tender Offers

Tender offers occur when the buyer circumvents the target company’s board of directors by purchasing a large portion of the target company’s shares at a premium price. In friendly cases, a tender offer may be the simplest way for the buyer to purchase a significant stake in the target company. In hostile situations (more common in tender offer cases), the acquiring company uses this tactic to appeal to shareholders and bypass management who does not wish to sell.

Acquisition of Assets

Acquisition of assets is when one company receives approval from shareholders to acquire the target company’s assets. This commonly occurs during a bankruptcy.

Management Buyout (MBO)

An MBO occurs when an organization’s executives purchase a stake in a public company and make it private.

Purchase Mergers

As the name suggests, a purchase merger happens when one company buys another— either with cash, by issuing new shares of its stock, or by taking on debt. This type of deal is generally taxable, making it appealing to buyers. Why? Because they can “depreciate” the acquired assets and reduce their tax liability.

Consolidated Mergers

In a consolidated merger, two companies conjoin, forming a new entity. These friendly deals benefit both parties, giving them access to more resources and ensuring they become more competitive and efficient.

How are M&As Valued?

Each party values the M&A differently. The buyer will likely devalue the target company to buy it for the lowest price possible. And, as you probably guessed, the target company will place a premium on the value to maximize profits. To get a more objective view, M&A advisors may pull comps from the market, conduct a cash flow analysis, or examine financial multiples.

Frequently Asked Questions

What is the difference between a merger and an acquisition?

A merger occurs when two companies combine to form a single entity, often as strategic partners. An acquisition happens when one company purchases and takes control of another. While the terms are often used interchangeably, the structure, tax treatment, and control implications can differ significantly.

What types of businesses typically pursue M&A transactions?

Privately held companies, family-owned businesses, growth-stage firms, and large corporations all pursue M&A transactions. Motivations may include:

• Expansion into new markets
• Gaining competitive advantage
• Succession planning
• Increasing operational efficiency
• Selling for retirement or liquidity

How long does a typical M&A transaction take?

Most M&A transactions take 6 to 12 months from preparation to closing. Complex deals, regulated industries, or cross-border transactions may take longer. Preparation before going to market can significantly impact timeline and success.

What are the different types of M&A transactions?

There are several types of M&A transactions, each structured to meet different strategic goals. A merger combines two companies into one entity, while an acquisition involves one company purchasing another. A consolidation forms an entirely new company from two existing businesses. In a tender offer, a buyer purchases shares directly from shareholders, often at a premium. Transactions may also be structured as an asset purchase (buying specific assets) or a stock purchase (buying ownership shares). Other structures include management buyouts (MBOs) and leveraged buyouts (LBOs), each with distinct financial, legal, and tax implications.

Why should I hire an M&A advisor?

An M&A advisor helps:

• Accurately value your business
• Identify and qualify buyers or acquisition targets
• Structure favorable deal terms
• Maintain confidentiality
• Negotiate effectively
• Navigate due diligence and closing

Professional guidance often leads to higher valuations, better deal terms, and smoother transactions.

Let True North Navigate You Through the M&A Process With Confidence

True North Mergers & Acquisitions is committed to guiding you through a seamless M&A process tailored to your business needs and personal goals. If you're gearing up for the future and need strategic insights to help you navigate, contact us now. Your first step toward a successful merger or acquisition starts here.