Mergers and acquisitions can turn into complex financial transactions, involving decisions that can impact the long term future of all parties involved.
Under these circumstances, accountants can play a vital role. We explore the role of accountants in mergers and acquisitions in this blog.
What is a Merger?
A merger is the combination of two companies or entities into one larger entity. The merged business takes on the name, corporate structure and financials of the larger company. Mergers are typically done to strengthen a company’s position in an industry, expand its market share or create new opportunities.
Companies will often merge with a competitor or complementary business in order to gain access to new markets, technology or resources. Mergers may also be done for cost cutting purposes, allowing the combined company to have a larger staff and more efficient operations.
While mergers can create opportunities and value for shareholders, they also involve risk, as it is difficult to accurately predict the success of a merger before it is completed.
What is an Acquisition?
On the other hand, an acquisition is the purchase of one business or entity by another. Unlike a merger, in which two separate companies combine to form a new company, acquisitions involve only one company taking ownership of all assets and liabilities of another. Acquisitions are usually defined as either friendly or hostile depending on the approach taken by the buyer.
Friendly acquisitions are typically initiated by mutual agreement between the buyer and seller, whereas hostile acquisitions involve a buyer attempting to take ownership of a company without the consent of its board or shareholders.
Differences Between a Merger and An Acquisition
The main difference between mergers and acquisitions is that a merger involves two companies combining to form a new entity, while an acquisition involves one company purchasing another.
Mergers usually involve two companies of roughly equal size combining to form a new entity, while acquisitions typically involve one company buying out another or taking control of it without its consent.
Additionally, mergers may be carried out via a stock swap – meaning the shareholders of both companies exchange their shares for those of the newly formed entity – while acquisitions are often done via a cash transaction.
For both mergers and acquisitions, regulatory oversight is required to ensure that competition law is not violated and shareholders’ rights are respected. As such, the process of completing either may take several months or longer to complete.
What Role Does Accounting Have In Mergers & Acquisitions?
Accountants play an important role in mergers and acquisitions. They are responsible for performing financial due diligence to assess the financial health of each company involved in the transaction, as well as conducting post-merger/acquisition analysis to ensure that all of the terms and conditions of the deal have been met.
Accountants must also ensure that proper accounting practices and procedures are followed throughout the merger/acquisition process. This includes preparing financial statements, setting up new accounting systems, reconciling accounts between the two companies, and monitoring costs and savings associated with the transaction.
In addition, accountants must ensure that both parties comply with tax laws and other regulations related to mergers and acquisitions. By doing so, they help to protect the interests of all stakeholders involved in the transaction.
Why Is It Vital To Have An Accountant?
Accountants are essential in mergers and acquisitions due to the complexity of the transaction. Not only do they need to understand both companies’ financials, but they must also be knowledgeable in areas such as tax law, accounting standards, and regulatory requirements.
Their expertise is invaluable when it comes to assessing the viability of a deal, as well as performing due diligence to ensure that both companies’ financials are accurate and up-to-date.
In addition, accountants are needed to reconcile accounts between the two companies, set up new accounting systems, and monitor costs and savings associated with the transaction. Without an accountant involved in the process of mergers and acquisitions, the chances of a successful transaction are greatly diminished.
Overall, an accountant provides guidance and ensures that the terms and conditions of any merger or acquisition are in line with both companies’ financial interests. This is why it is vital to have an accountant involved whenever mergers and acquisitions take place.
Mergers and acquisitions involve a complex process that requires specialised knowledge in order to be successful. Accountants are critical to this process due to their expertise in areas such as tax law, accounting standards, and regulatory requirements. They provide guidance and ensure that the terms and conditions of any merger or acquisition are followed throughout the entire process.
Without an accountant involved, the chances of a successful transaction are greatly reduced. Therefore, it is critical to have a qualified accountant, who is well versed and up-to-date on all practises and involvements when conducting mergers and acquisitions.