Page 17 - M & A Disputes

tions are merged, and the merged corporations cease to exist in favor of a newly established corporation,
the new corporation is referred to as the successor corporation.

M&A transactions have two general categories of buyers: strategic buyers and financial buyers.

Strategic buyers acquire target assets or companies to enhance their existing business and operations.
For example, strategic buyers may seek to acquire or purchase other companies in order to create a more
competitive and cost-efficient company, diversify their product offerings, or gain market share within a
particular industry or geographic location. The key motivation for combining two companies, from a
strategic buyer’s perspective, is to create combined shareholder value greater than that of the sum of the
stand-alone companies.

Among the driving forces for an M&A transaction for a strategic buyer are the anticipated synergies and
the resulting perceived value enhancements of the combined entity. Synergies may include enhance-
ments such as economies of scale derived from the transaction, overhead cost reductions, acquisition of
new or improved technology or intellectual property, or improved market depth and visibility. Examples
of some synergistic transaction strategies include the following:

 Horizontal acquisition. A horizontal acquisition occurs when the two combining companies are
in direct competition with one another, sharing similar product lines and product markets (that is,
Beverage Co. A merges with Beverage Co. B).

 Vertical acquisition. A vertical acquisition occurs when a company combines with a customer or
supplier, forming an entity to create vertical integration (that is, Automobile Co. merges with
Tire Co.).

 Market-extension acquisition. A market-extension acquisition occurs when two companies sell-
ing the same products in different markets combine to form an entity (that is, Tire Co. East
merges with West Coast Tires Co.).

 Product-extension acquisition. A product-extension acquisition occurs when two companies sell-
ing different but related products in the same market combine to form an entity (that is, Screws
& Nails, Inc., merges with Screwdriver & Hammers, Inc.).

Financial buyers acquire target assets or companies with the intent to realize value from an acquisition in
excess of the purchase price. Typically, financial buyers seek to earn a return on their investment. They
transact because they perceive opportunities to invest, enhance cash flow generation, and exit at a profit.
Private equity firms are well-known examples of financial buyers.

Stages of M&A Transactions

The successful execution of an M&A transaction is an extensive exercise involving many stages. These
stages range from the initial step of identifying or marketing potential transactions to the closing of the
transaction and the resolution of any postclosing disputes that may arise. The following chart 1.2 illus-
trates the timing of the principal stages to an M&A transaction. Practitioners and forensic professionals
may find these stages useful in their understanding of such transactions and of the potential disputes that
may arise:

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