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The Technical Interview Guide to Investment Banking, + Website by Paul Pignataro

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CHAPTER 6Mergers and Acquisitions Overview

The distinction between a merger, an acquisition, a divestiture, and other types of restructurings warrants some clarification. Transactions can come in a multitude of forms, can be a hybrid of several classifications, or in new markets can create a brand-new classification altogether. Often some of the definitions are used interchangeably or are categorized differently. There has really been no set standard on these definitions, but I will attempt to simplify and clarify. It is important to understand these core structures to better classify any individual transaction explored. Note that there are many excellent books that go through the subjective, regulatory, and legal aspects of mergers and acquisitions. This book is designed to give a technical and procedural approach, so I will only be brief on the major keywords.

  1. Merger: A merger is fundamentally the combination of two or more business entities in which only one entity remains. The firms are typically similar in size. (Company A + Company B = Company A.)
  2. Consolidation: A consolidation is a combination of more than one business entity; however, an entirely new entity is created. (Company A + Company B = Company C.)

    Acquisition: An acquisition is the purchase of a business entity, entities, or an asset or assets. Although often used interchangeably an acquisition differs from a merger in that the acquiring company (the acquirer) is typically significantly larger than the asset ...

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