An acquisition is when all of a company's assets, including its rights and obligations, transfer to another company, with the shareholders of the target company receiving shares directly in the acquiring company. The target company then disappears as a result of a dissolution without liquidation.
This in contrast to a normal sale or contribution of a company's business assets to a different company. Here the transferring company continues to exist with as assets only the money or shares acquired in exchange for the transferred assets.
The exchange ratio is very important in an acquisition. This is the relationship between the number of new shares in the acquiring company being awarded to the shareholders of the target company, in exchange for their shares in the target company, which ceases to exist.
Acquisition versus merger
Most mergers involve combining multiple companies that are already owned by the same shareholder(s). Hence in this case we speak not of an external acquisition, but of merging associated companies in order to obtain a simpler structure.
Types of merger
Merger by acquisition
Traditionally, a merger in which the assets of a company are acquired by a different, already existing company.
Merger with consolidation
A merger for which the assets of one or more companies are brought into a new, yet to be established company.
Acquisition of a subsidiary by parent company
Acquisition of the assets of the subsidiary by its parent company, which already owned all of the shares of this subsidiary.
Mergers and acquisitions in practice
A number of formalities must be fulfilled for a merger or acquisition:
- Drawing up a merger/acquisition proposal by the administrative bodies of the companies involved. This proposal must be submitted to the registry of the commercial court at least 6 weeks before the notarial deed that establishes the merger/acquisition.
- Drawing up a report by the administrative bodies of the companies in question in which the legal and economic aspects of the merger/acquisition are explained.
- Drawing up an audit report by a company auditor on the merger/acquisition proposal and in particular on the exchange ratio. In certain situations, the reports by the administrative body and the company auditor may be omitted, but in this case a company auditor must draw up a ‘contribution in kind’ report concerning the assets and liabilities that are transferred.
- Charging a civil-law notary with execution of the merger/acquisition deed.
Hence a merger requires preparation and strict compliance with the relevant legal formalities. As company auditor, BB3 can prepare an audit report on the merger/acquisition proposal and more specifically the applied exchange ratio or contribution in kind.