Five Most Common Business Acquisition Methods

 Posted on December 25, 2024 in Business Law

When businesses in the New York Metro area consider growth through acquisition, understanding the methods available is the first step to choosing a target for acquisition. Each method has its unique structure, benefits, and legal implications, and the one that suits your business will depend not only on the business being acquired but also on what your long-term business goals are. 

At Ivey, Barnum & O'Mara, LLC, our team of New York corporate merger and acquisition attorneys advises businesses and their owners, boards, or shareholders on how to best achieve their growth objectives through acquisitions. 

Stock Purchase

A stock purchase involves acquiring the shares of a target company directly from its shareholders. In this method, the buyer gains control of the company by owning its equity, which includes all its assets, liabilities, and operational structure. This approach is common when the buyer wants to retain the company’s existing legal and operational setup.

For example, consider a large tech firm, TechHub, acquiring a smaller software company, CodeGenius. TechHub agrees to purchase all outstanding shares of CodeGenius from its shareholders. By doing so, TechHub takes control of the entire business, including its intellectual property, contracts, and existing workforce. However, because TechHub also assumes all liabilities, including potential lawsuits and debts, a thorough due diligence process is critical.

In New York, stock purchases are often favored for acquiring privately held companies where the number of shareholders is limited, making the transaction relatively straightforward.

Asset Purchase

An asset purchase involves buying specific assets and liabilities of a target company rather than acquiring its equity. This method allows the buyer to pick and choose which assets to acquire, avoiding unwanted liabilities. Asset purchases are often used when the buyer wants to avoid inheriting the target company’s debt or legal risks.

For instance, a national retail chain, RetailWorld, may wish to expand its footprint by purchasing select storefronts, inventory, and equipment from a struggling regional competitor, MetroShops. RetailWorld can structure the transaction to exclude MetroShops' liabilities, such as vendor debts or pending lawsuits. However, asset purchases may require obtaining consent for transferring contracts or leases, which can add complications to the deal.

In the New York Metro area, asset purchases are common in industries like retail and manufacturing, where specific assets can be more valuable than the company as a whole.

Merger

A merger occurs when two companies combine to form a single entity. This method is often pursued when businesses of similar size and market presence see mutual benefits in uniting their operations, resources, and customer bases. Mergers typically require significant negotiation and agreement between both companies' boards and shareholders.

A notable example is the merger between two mid-sized media companies, Gotham Media and Empire Productions. The combined entity, Empire Gotham Media, benefits from an expanded audience base, shared technology resources, and a stronger presence in the competitive New York market. While mergers create opportunities for growth, they also pose challenges, such as integrating different corporate cultures and operational systems.

In New York, mergers are frequently seen in highly competitive industries like media, finance, and technology, where businesses aim to strengthen their market positions.

Consolidation

Consolidation is similar to a merger but involves the creation of a new company, with both participating entities ceasing to exist as independent businesses. The assets, liabilities, and operations of both companies are transferred to the newly formed organization. This method is ideal for companies seeking a fresh start under a unified structure.

For example, two logistics companies, MetroFreight and CityLine Hauling, decide to consolidate to form a new entity, NY Metro Logistics. This new company combines the resources, networks, and expertise of both predecessors, enabling it to compete more effectively in the regional market. Unlike a merger, consolidation requires forming a new corporate entity, which involves additional legal and regulatory steps.

In the busy New York Metro area, consolidations are often seen in sectors like logistics and transportation, where collaboration can lead to enhanced efficiency and customer service.

Tender Offer

A tender offer is a public proposal by an acquiring company to purchase shares directly from the shareholders of a target company, typically at a premium over the current market price. This method is often used in hostile takeovers or when the acquiring company seeks to bypass the target company's board of directors.

For instance, a pharmaceutical giant, HealthAdvance, may want to acquire a smaller biotech firm, BioNova, to gain access to its innovative drug portfolio. If BioNova’s board is resistant to negotiations, HealthAdvance could initiate a tender offer to BioNova’s shareholders, offering a lucrative deal for their shares. By gaining a controlling interest, HealthAdvance can effectively take over BioNova, even without board approval.

In the New York Metro area, tender offers are commonly observed in public company acquisitions, where shareholder interests and market dynamics play a significant role in determining the outcome.

Choosing the Right Acquisition Method

Each of these acquisition methods has distinct legal, financial, and operational implications. Factors such as the target company’s structure, the buyer’s goals, and industry-specific considerations dictate the most appropriate approach. Businesses in the New York Metro area should consult experienced corporate attorneys and financial advisors to navigate the complexities of these transactions and ensure compliance with state and federal laws.

Understanding these methods and their nuances enables businesses to make informed decisions, positioning themselves for long-term success in a competitive market. Whether you’re acquiring shares or assets, or merging operations, the right strategy can make all the difference in achieving your growth objectives.

Partner with Experienced New York Corporate Attorneys

At Ivey, Barnum & O'Mara, LLC, our Connecticut merger and acquisition attorneys are well-versed in handling a wide range of transactions, including reorganizations and divestitures. No matter the type of deal you are considering, we are committed to keeping your business fully compliant with federal, state, and local regulations. Our team focuses on minimizing risks while maximizing opportunities for profitability, ensuring your acquisition aligns with your strategic goals. Contact us today at 203-661-6000 to discuss how we can support your business’s growth and success.