What is the difference between a private and a public merger?

On Behalf of Dunlap Fiore, LLC |

Companies and businesses in Louisiana and other states in the nation make decisions each and every day. Some of these decisions can greatly impact the company, causing them to take careful and proactive measures before and during these major business transactions. When preparing for a business merger, it is essential to understand what type of merger is in the best interest of the business. Specifically, whether a public or private merger is the appropriate step to take.

What is the difference between a private and a public merger? The best way to describe the difference is to understand why a company would want to make a public or private transaction or agreement in general.

With regard to public transactions, these typically include a public entity. A public entity would likely be the target company or the company acquiring the other company. On the other hand, private transactions usually include the sale of a private company, subsidiary or selected assets of a public entity.

The distinction between the two types is key because they do serve different purposes. Private transactions have an existing, known and identifiable seller, which could be a corporate entity or a small number of shareholders. The key difference with a private transaction is the existence of a seller to indemnify the buyer, or stand behind its obligations, once the transaction is completed.

A public transaction, on the other hand, typically does not has an identifiable party to stand behind the obligations of the target following the close of the transaction. This key difference limits the ability of the buyer to enforce any form of post-closing indemnifications.

Initiating and completing a merger can be a complex and lengthy task for businesses; therefore, it is important that companies are aware of the options available to them. Additionally, it is crucial that a business understands the process of a merger and acquisition and what rights they have during all phases of the process.

Source: Macabacus.com, “Private vs. Public Deals,” accessed Dec. 11, 2016