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A triangular merger is one of the types of M&A structures in which one company indirectly acquires another company. That said, the acquiring company creates a subsidiary company to complete the transaction with the target company. Triangular mergers are further categorized into two categories: a forward triangular merger and a reverse triangular merger.
What are these two types, and how are they beneficial for businesses? Let’s find out.
Merger vs. acquisition: how are they different
Before moving to triangular mergers, it is important to know that mergers and acquisitions are two different business transactions. An acquisition gives the acquiring company full or significant control over the other business. Mergers mean two different entities combining operations to merge and usually create a new business entity.
What is a forward triangular merger?
A forward triangular merger is a form of subsidiary merger in which a buyer purchases a target by means of a “subsidiary” or shell company. In a forward triangular merger, the target business “vanishes” into the shell business following the merger.
Advantages and limitations of forward triangular mergers
Triangular mergers are beneficial in multiple ways, but they have pitfalls of their own as well.
Perks of forward triangular mergers
Tax benefits. There are tax implications of mergers and acquisitions of this type. The underlying reason for the majority of forward triangular mergers is tax benefits. By purchasing the target firm with a mix of stock and cash, as opposed to solely cash, the acquiring company can deduct tax on the voting stock it issues to purchase the target firm and save substantially on taxation.
Lessened liabili… Read More
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