Types of Corporate Restructuring

Mergers and acquisitions are one type of corporate restructuring. Before starting the discussion on the relevant types of mergers and acquisitions, it is important to become familiar with some various terms pertaining to corporate restructuring:

• Merger The combination of two companies (targets) or more within one of the companies (the acquirer or the surviving entity), upon completion of which all of the targets other than the acquirer cease to exist as separate legal entities.

• Consolidation The combination of at least two companies, upon which all of the companies cease to exist as separate legal entities and operate as a new legal entity.

• Acquisition A situation in which a company acquires full or partial ownership of the shares or assets of another company. A stock acquisition can be performed as part of a merger, an acquisition of assets, or an acquisition of shares directly from the shareholders, or by way of a tender offer for the acquisition of shares from the public.

• Leveraged buy-out A series of actions in which a substantial part of the company's share capital is bought in consideration for cash raised by way of debt. In many cases, the debt is guaranteed by the company's assets.

• Going private A situation in which the shares of a publicly traded company which are held by the public are bought by a group of investors who want to have the company unlisted.

• Divestiture A situation in which the company sells portions of its assets (such as a certain branch of its activities).

• Spin-off A situation in which the company is split into several distinct companies, with the shares in the new companies being issued to the original shareholders. This phenomenon became very common in the 1990s. A derivative of this act is the sale of the parent company's shares in the subsidiary which is already traded (equity carve-out or spin-out).

This part of the book naturally focuses on the actions which are relevant to young technology companies, i.e., mainly on various techniques of mergers and acquisitions.