Mergers & Acquisitions
Comprehensive Guide to
Handling M&A

Emptech's founder, Jeff Aleixo


Jeff Aleixo

Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets through various types of financial transactions. The M&A process can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions. In all cases, two companies are involved.

Difference Between A Merger and An Acquisition

Although they are often used together, the terms merger and acquisition mean slightly different things.

A merger occurs when two separate entities combine forces to create a new, joint organization in which, theoretically, both are equal partners. An acquisition refers to the purchase of one entity by another, usually a smaller firm by a larger one. A new company does not emerge from an acquisition. The acquired company, or target firm, is often consumed and ceases to exist, and its assets become part of the acquiring company.

Acquisitions, sometimes called takeovers, generally carry a more negative connotation than mergers, especially if the target firm shows resistance to being bought. For this reason, many acquiring companies refer to acquisition as a merger even when technically it is not.

Legally speaking, a merger requires two companies to consolidate into a new entity with a new ownership and management structure. An acquisition takes place when one company takes over all of the operational management decisions of another.


Types of Mergers

There are generally five different types of mergers:

Horizontal merger

A merger between companies that are in direct competition with each other in terms of product lines and markets. Aims of horizontal mergers are increased market share, cost savings, and exploring new market opportunities.

Vertical merger

A merger between companies that operate along the supply chain. Therefore, in contrast to a horizontal merger, a vertical merger is the combination of companies along the production and distribution process of a business. The rationale behind a vertical merger includes higher quality control, better flow of information along the supply chain, and merger synergies.

Market-extension merger

A market-extension merger is a merger between companies that sell the same products or services but operate in different markets. The goal of a market-extension merger is to gain access to a larger market and thus a bigger client base or target market.

Product-extension merger

A product-extension merger is a merger between companies that sell related products or services and operate in the same market. By employing a product-extension merger, the merged company is able to group their products together and gain access to more consumers.

It is important to note that the products and services of both companies are not the same, but they are related. The key is that they utilize similar distribution channels, common or related production processions, or supply chains.

Conglomerate merger

A conglomerate merger is a merger between companies that are totally unrelated. There are two types of conglomerate mergers – pure and mixed.

A pure conglomerate merger involves companies that are totally unrelated and that operate in distinct markets.

A mixed conglomerate merger involves companies that are looking to expand product lines or target markets.

The biggest risk in a conglomerate merger is the immediate shift in business operations resulting from the merger, as the two companies operate in completely different markets and offer unrelated products or services.

Obtain full support from the pre-merger planning stage all the way through the close of the transaction with a strategic platform that ensures compliance and efficiency.

Key Phases of M&A Transaction

The process of M&A involves different stages:

Growth or Portfolio Strategy

A company’s M&A strategy should be a subset of its overall corporate growth strategy. This M&A phase should provide a road map for corporate development, clearly articulating the expected value and contribution of M&A to the overall growth strategy.

It facilitates the dialogue between executive management and the board of directors, enabling them to develop a shared view of as to the role of M&A in executing the strategy. It defines funding and other constraints, profiles the criteria for screening acquisition candidates, and determines the company’s acquisition valuation methodology.

In this phase, all of these factors are pulled together to provide transparency for stakeholders to review and approve in the context of the risks and rewards of M&A pursuits in executing the overall growth strategy.

Due Diligence

This critical phase examines a potential M&A target to validate the prospective deal’s value proposition, identifies material future matters that may affect deal valuation, discovers potential synergies, and opportunities for structuring the transaction, and assess their impact.

Furthermore, after reviewing current policies and processes, due diligence serves to identify factors to consider in integration planning, analyzes the market and the target to assess the players in the industry and emerging long-term trends, identifies potential risks and negative synergies, and facilitates an understanding of the target’s underlying value to influence the structuring of the deal and financing.

Integration Planning

This phase lays out the road map for delivering the synergies, efficiencies and growth promised in the transaction business care and is focused on delivering the expected value and transformational opportunities, versus merely combining two companies.

The integration plan is developed by the integration team in collaboration with the business development team, consistent with the view that the integration process begins early on with the due diligence process to prepare the integration approach, and continues through the ongoing management of the acquired entity immediately after the deal closes.

The integration plan focuses on sustaining ongoing operations and managing the cultural differences between the acquiring and acquired entities, satisfying existing customers and business relationships, identifying the critical decisions that must be made, retaining key employees, maintaining labor relations and productivity, integrating different corporate cultures, and organizing the process for delivering the expected value to shareholders.

The plan articulates what must be done and the decisions that must be made post-acquisition on the first day, each week, the first 100 days, the first year, and thereafter.

Integration Execution

This phase typically requires the most time and resources during any transaction and also has the most risk. After the deal is closed, the integration team provides the energy, discipline, and focus on executing the integration plan. They also focus on ensuring the synergies, efficiencies and growth promised in the transaction business care are delivered and measure and track progress while managing the change issues.

Merger integration entails all the risks commonly encountered by a business, plus the additional risks specific to bringing two organizations together. Every M&A process is unique, but the biggest risks to achieving the expected results are typically a loss of customers or order volume to competitors, business interruptions, loss of key personnel, and underachievement on savings projections.

Project Management

Project management supports acquisition throughout the deal process, from due diligence through execution.

As a centralized group providing governance and coordination over the activities of decentralized teams, it is responsible for:

  • Reviewing deals and developing the business case for deal pursuit,
  • Collaborating on an ongoing basis with legal, accounting, tax, operating personnel and other staff involved in the deal process,
  • Planning the due diligence process,
  • Coordinating the negotiation process,
  • Providing tools, processes, and risk oversight to integration teams to ensure expected synergies,
  • Delivering efficiencies and growth as promised, and identifying and maximizing any new opportunities, and
  • Collaborating with the legal team.

Change Management

Maximizing human capital once the acquisition is consummated is critical to deal success. Often, this entails integrating cultures and managing change within a consistent governance structure to deliver the expected synergies, efficiencies, and growth underlying the deal’s business case.

Change management is focused on supporting the integration process by:

  • Identifying cultural strengths and weaknesses, and how to leverage strengths and overcome weaknesses presenting barriers to change,
  • Securing employee and stakeholder commitment through a shared and inclusive vision and effective organizational structure,
  • Providing the necessary employee training,
  • Designing and implementing change management plans,
  • Managing cultural issues of the new organization through appropriate prioritization, transparency, and accountability, and
  • Tracking progress over time.

Due Diligence Checklist

Every M&A deal is unique and the depth of due diligence needed on a specific topic will vary depending on the company and the dynamics of the deal. However, there are certain due diligence matters that are generally included in transactions and are generally addressed on a due diligence checklist:

Corporate Structure & General Matters

Corporate attorneys carefully review the corporate structure, capitalization, organizational documents and general corporate records of the company in order to ensure that everything is in order. Some of the documents typically reviewed include:

  • Incorporation documents;
  • Corporate bylaws;
  • Organizational chart;
  • Lists of all securities holders;
  • Stock option agreements and plans;
  • Stockholder and voting agreements;
  • Warranties;
  • Stock appreciation rights plans and related grants;
  • Recapitalization or restructuring documents;
  • Minutes from all board, shareholder, and/or executive committee meetings since charter; and
  • Agreements related to any sales or purchases of businesses.

Corporate attorneys generally review all the company’s financial information from the last five years, including income statements, balance sheets, cash flow and audit reports.

Other financial documents that may be reviewed include projections, budgets and forecasts for the financials of the next five years and assess whether they are reasonable.

Finally, corporate attorneys generally review all credit agreements, debts and contingent liabilities.


Tax due diligence explores any historical income tax liabilities and provides an analysis of any tax carryforwards and their potential benefits.

Corporate lawyers verify that taxes are current in all jurisdictions and that there are no unexpected tax problems.

Documents generally reviewed include:

  • Federal, state, local, and foreign income, sales, and other tax returns filed in the last five years;
  • Correspondence or notice from any foreign, federal, state, or local taxing authority;
  • Government audits;
  • Tax sharing and transfer pricing agreements;
  • Net operating losses or credit carryforwards;
  • Settlement documents with the IRS or other tax authorities; and
  • IRS Form 5500 for 401(k) plans.

Strategic Fit

In any M&A transaction, future performance and strategic fit can be just as important as any current profitability.

A key business diligence point is exploring the extent to which company will fit strategically within current business. This includes considerations of human resources, integration and transition, marginal costs, technology and general work culture.

Intellectual Property

An intellectual property lawyer can help establish extent and quality of the target company’s technology and intellectual property, as well as its protection.

The lawyer typically reviews all:

  • Patents
  • Copyrights
  • Trademarks
  • Domain names
  • Trade secrets
  • Licenses and licensing agreements
  • IP litigation and claims
  • Liens or encumbrances on the company’s intellectual property

Material Assets

Often, the material assets of the company are key to the M&A transaction. It is important to consider the total value of all assets and any debts or liabilities against them.

Generally, the following assets are appraised:

  • Inventory stock;
  • Real estate;
  • Equipment;
  • Technology; and
  • Research and development.


A corporate lawyer’s review of all material contracts and commitments of the target company is one of the most critical and time consuming parts of due diligence.

A corporate attorney generally reviews all of the contracts currently in force that involve the target company, including:

  • Customer and supplier contracts;
  • Schedule of accounts receivable and payable;
  • Guaranties, loans and credit agreements;
  • Agreements of partnership or joint venture;
  • Equipment leases;
  • Settlement agreements;
  • Non-compete, most favored nation and exclusivity agreements;
  • License agreements;
  • Distribution, dealer, sales agency or advertising agreements;
  • Franchising agreements; and
  • Employment contracts.

Employees and Management

Whether the employees are a key resource in a merger or acquisition or not, understanding the quality and structure of company’s management and employee base is often important to understanding the value of a company.

An employment lawyer generally reviews all employee contracts, benefits, and policies.  Buyers also generally seek to understand which employees should remain with the company after the transaction, as well as any past employee issues or looming future problems.


It is important to know if the deal would include potential legal liabilities. Accordingly, a lawyer generally reviews any pending, threatened or settled litigation, arbitration or regulatory proceedings involving the target company.

Compliance and Regulatory Matters

Attorneys also review regulatory and compliance issues—both involving the target company and the deal in general.  In particular, lawyers nearly always assess the antitrust implications of the proposed transaction.


Effective M&A Management

Effective M&A Management

Due Diligence

Planning and Design

Implementation and Compliance


Information and data gathering:

Forms 940 and 941;

Federal and state tax notices;

UI tax rates and returns;

Payroll policies and procedures;

Past mergers and acquisitions.

Opportunity and risk assessment:

High SUI tax rates;

Unpaid employment taxes;


Financial modeling and analysis:

UI tax analysis;

Successor wage base treatment: social security, FUTA, and SUI;

Transfers of SUI experience: optional or mandatory.

Organizational and legal structuring.

Purchase agreement language.

Payroll integration.

Compliance filings:

Accounts registered and closed;

Status change;

Account reconciliations;

Benefit change details;

Payroll detail;

Transfers of experience;

Wage base transfers.

Realization of desires outcomes:

Ensuring timely processing of compliance filings;

Coordination with state agencies to address inquiries;

Confirming accuracy of successor tax rate calculations;

Protesting tax rate discrepancies;

Verifying that tax accounts have been closed;

Avoiding inefficient use of future resources;

Shortening the time needed for accruing revised tax rates.

Outsourcing M&A allows companies to collect, review, and analyze large amounts of data in a cost-effective manner, minimize delays, easily identify errors, and resolve potential issues on time.

M&A Advantages

Regardless of their category or structure, all mergers and acquisitions have one common goal – they are all meant to create synergies that make the value of the combined companies greater than the sum of the two parts.

The success of a merger or acquisition depends on whether this synergy is achieved.

Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:


Many companies use M&A to grow in size. While it can take years or decades to double the size of a company through organic growth, this can be achieved much more rapidly through mergers or acquisitions.


This is a very powerful motivation for mergers and acquisitions and is the primary reason why M&A activity occurs in distinct cycles.


Companies also engage in M&A to dominate their sector.


Companies also use M&A for tax purposes, although this may be an implicit rather than an explicit motive. For instance, since the U.S. has the highest corporate tax rate in the world, some of the best-known American companies have resorted to corporate inversions. This technique involves a company buying a smaller foreign competitor and moving the merged entity’s tax home overseas to a lower-tax jurisdiction, in order to substantially reduce its tax bill.


Mergers tend to involve reducing the number of staff members from accounting, marketing, and other departments. Job cuts also usually include the former CEO, who typically leaves with a compensation package.


This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.


To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.


Companies buy companies to reach new markets and grow revenues and earnings. A merger may expand two companies’ marketing and distribution, giving them new sales opportunities.

It can also improve a company’s standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.

Utilizing automation during an M&A transaction can significantly increase deal value due to speedy and efficient consolidation of systems and processes.

Tips for Cost-Effective, Efficient, and Compliant M&A Employment  Tax Treatment

The proper handling of employment tax-related issues associated with a merger, acquisition, restructure and/or re-organization can help establish many areas of beneficial tax treatment, as well as help avoid significant transaction-related reporting penalties.


It is necessary to get at least 3 years of wage and tax detail, filings, and SUI rate notices associated with the “target” company.

Where applicable, target company officers should sign releases to communicate and obtain information on the target company from the local, state and federal agencies.


The deal structure from the deal team has to be fully understood.


It is always advisable to confirm the date of the event (acquisition, merger, transfer, etc.) as well as the date of employee migration.

If there was a lack of continuity in employment at the target company, as occasionally occurs in financial distress acquisitions, it is necessary to know the timeline between last payroll at the target company and first payroll at the new employing entity.


Depending upon the type of transaction, it is necessary to determine if a company meets the criteria to qualify as a successor employer. This succession testing should be performed for each individual federal and state jurisdiction, as the definition of succession varies by area.


It is advisable to rely on the state and local agencies to know of any event that may involve a change in control, change in officers and/or change of employee entity.


For each state, the UI Transfer of Experience reporting rules need to be evaluated and reporting requirements and/or optional treatment should be determined.


Depending upon UI Transfer of Experience rules, the employing entity may have a change in UI rate due to association with the target company. It is necessary to evaluate impact and track agency position to ensure correct application.


If eligible for some or all jurisdictions, it is important to carry-forward the target company’s taxable wage history before the first payroll at the new employing entity.


It is important to make sure all communication is clearly tracked as well as to save and house all communication confirmations.


Whenever possible, agency confirmation in writing for affirmation of reporting and/or decisions should be obtained.


Depending upon the event profile, it may be necessary to ensure the target company local, state and federal employment tax accounts are closed.


Depending upon the event profile, new accounts (SUI, SIT, locals, etc.) may have to be opened.


Evaluating target company accounts for areas of potentially embedded credits from prior contributions or other areas of unused beneficial tax credits that still may be eligible for recovery is necessary.


It is important to contact agencies in order to determine if any outstanding balances and/or reporting issues may exist. If yes, these need to be addressed as soon as possible with the target company.


Due to limited resources at the agency level, it is common that transaction-related communication and requests are misguided, mishandled and/or lost. Therefore, it is necessary to follow up both by phone and in writing with the agencies to confirm receipt as well as to continue follow-up until all final decisions by the agencies are completed and affirmed in writing.

The information contained within this document is general in nature and is not intended and should not be construed as legal, HR, or opinion by Emtpech. Please contact Emptech or another subject matter professional prior to acting on any information provided in this document.We recommend caution when contemplating acting on any information provided in this document as it may not be applicable or suitable for the specific viewer’s needs. Emptech assumes no obligation to update any viewer of any changes in law, rule, or regulation that could affect the information contained herein.Without express written permission from Emptech, no part of this document may be reproduced, re-transmitted, or otherwise redistributed in any form or by any means, including, but not limited to photocopying, electronic, facsimile transmission, or using any other information storage and retrieval system.