Mergers and Acquisitions of Privately-held Companies

Mergers and acquisitions play a major role in many smaller and mid-size privately-held companies. Privately-held companies acquire or merge with other companies in order to remain competitive, accelerate growth or to grow their business to the next level.

A growth acquisition also enables a privately-held company to develop a competitive advantage by increasing their depth of management team, technology and intellectual property, flexibility, growth and shareholder value. The most common reasons for a private company to acquire or merge are strategic growth, talent growth, customer growth, entering a new geographic market or industry (buy vs. build) or preparation for an exit. CEO Advisor has decades of experience in mergers and acquisitions of private companies. Gain the needed expertise to evaluate your options.

Growth Transactions

There are several reasons why private companies choose to expand through growth transactions rather than grow internally or organically. First of all, growth transactions happen much faster, whereas organic growth takes time as sales grow. A privately-held company’s goal may be to eliminate a competitor, enter a new industry or geographic market, introduce a new product line, acquire key technology, products or services, or bring on the talent and management team that results from a growth transaction.

Expansion can be accomplished through acquisitions, mergers, asset acquisitions and similar transactions. The following methods can be used to help a private company grow expeditiously.

Acquisition – An acquisition occurs when a public or private company buys the stock of another company. An acquisition may also occur as an “asset purchase”, where rather than buying the stock, the buyer simply buys the entirety or a portion of the assets of another company. The assets may be tangible such as customers, inventory and machinery, or intangible assets such as intellectual property (software, patents and trademarks). The selling company may then continue as a smaller company or dissolve after the sale.

Merger – A merger is when two companies combine to form a single entity under a consolidated management and ownership. A merger can take place through an amalgamation or absorption.

Amalgamation is when two or more companies enter into the merger agreement to form a completely new entity. In this type of merger, both companies lose their identity and a new company is formed to manage the consolidated assets. Amalgamation tends to occur when both companies are of equal size.

Absorption is when the merger occurs between two entities of a dissimilar size. In such case, the larger company absorbs the smaller one. The merger dissolves the smaller company and places all of its assets in the control of the larger company.

Talent Acquisition – An acquisition-by-hire may occur especially when the target private company is quite small or is in the startup phase. In this case, the acquiring company simply hires the staff of the target private company, thereby acquiring its talent (if that is its main asset). The target private company simply dissolves and few legal issues are involved.

Strategic Alliance – A strategic alliance can range from a large distributor or reseller marketing and selling your products to a larger alliance with financial backing or special terms.

Joint Venture – A joint venture is when two or more private companies enter into an agreement to allot a portion of resources towards the achievement of a particular goal over a designated period of time. Synergies occur when businesses capitalize on joint opportunities or other combined efforts to obtain greater results than working alone, whether it is increased revenue or decreased costs or both.

CEO Advisor, Inc., has the expertise to guide your company through the many steps involved in a merger or acquisition. Contact Mark Hartsell, MBA, CEO of CEO Advisor, Inc. today to discuss your growth needs at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit www.CEOAdvisor.com for more information.M&A2014

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