What is corporate restructuring and how do mergers, acquisitions, and demergers work? 

Mergers and Acquisitions

Although the terms are often used together, mergers and acquisitions describe different types of transactions.

A merger combines two or more companies into a single legal entity. Depending on the transaction, one company may continue as the surviving entity, or a new company may be created.

An acquisition occurs when one company gains ownership or control of another by purchasing its shares or assets.

There are two principal forms of acquisitions:

• Share acquisition: The acquiring company purchases shares in the target company and obtains ownership of the legal entity.
• Asset acquisition: The acquiring company purchases selected assets—and, where agreed, certain liabilities—without acquiring the legal entity itself.

Companies use mergers and acquisitions to expand into new markets, strengthen their competitive position, acquire technologies or expertise, improve operational efficiency, and support long-term growth.

Legal Forms of Merger

Mergers are generally structured in one of two legal forms:

• Merger by absorption: One company absorbs another. The surviving company continues to exist, while the absorbed company ceases to exist.
• Merger by consolidation: Two or more companies combine to form a new legal entity. The original companies cease to exist.

Strategic Types of Merger

Mergers can also be classified according to the relationship between the participating companies:

• Horizontal merger: Between companies operating in the same industry and at the same stage of the value chain.
• Vertical merger: Between companies operating at different stages of the same supply chain.
• Congeneric merger: Between companies in related industries offering complementary products or services.
• Conglomerate merger: Between companies operating in unrelated industries.
• Reverse merger: A privately held company acquires control of a publicly listed company, providing an alternative route to becoming publicly traded.

Demergers

A demerger separates one or more business activities into independent companies or transfers them to another entity. Unlike mergers and acquisitions, which combine businesses or transfer ownership, demergers focus on separating businesses to improve strategic focus or operational efficiency.

The most common forms of demerger are:

• Spin-off: A business unit becomes a new independent company while the parent company continues to exist.
• Split-off: Shareholders exchange shares in the parent company for shares in the new company.
• Split-up: The parent company is divided into two or more independent companies and ceases to exist.

At a Glance 

For a more detailed explanation of the different forms, strategic objectives, and practical examples of mergers, acquisitions, and demergers, see our comprehensive article in the North Data Blog.