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Middle Market M: Handbook for Investment Banking and Business Consulting by Michael R. Nall, Christian W. Blees, Robert T. Slee, Kenneth H. Marks

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CHAPTER 8

Mergers

For purposes of this chapter, a merger is a transaction in which two entities come together to form a combined entity that will continue as one and have combined ownership. It is often thought of when two equal-sized businesses join to create a combined business. This is unlike a sale or acquisition, in which one party will in essence take control of the other party, which may or may not continue on afterward. As a practical matter, a merger as we describe it in this chapter does not necessarily need to be structured as such for legal or tax purposes. (Chapter 13 discusses the mechanics of a legal merger.) In fact, many so-called mergers are technically structured similarly to acquisitions. The concept of a merger as we describe it here is meant to include any transaction in which the management and owners of both companies agree to join arms and combine their businesses. Another distinguishing factor of the merger for the private middle market is that the entities’ owners are rarely cashed out; rather, all owners end up with common ownership in the remaining business.

Figure 8.1 provides a rough outline of the process of a merger and sets the stage for the rest of the chapter.

INITIAL ANALYSIS OF BOTH ENTITIES

Initial analysis of both entities is the first stage of any merger. It is important to start by understanding the different structures and the goals of each party, and to begin to identify any deal hurdles, such as:

  • What are the current growth and operating ...

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