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What are forward triangular merger and reverse triangular merger?
Subsidiary mergers are divided into following −
- Forward triangular merger
- Reverse triangular merger
First, let us learn about the forward triangular merger.
Forward triangular merger
In a forward triangular merger, the company acquires another company through its subsidiary company.
This type of merger is also called indirect merger.
In this, a combination of cash and stock is used for financing. If only cash is used, that amount is taxable.
Advantages
The advantages of forward triangular merger are as follows −
- More flexible.
- Cash and stocks are used for financing.
- More protection to buyers.
Disadvantages
The disadvantages of forward triangular merger are as follows −
- Less preferred.
- Have to reassess all contracts, licenses etc.
- Increase in costs for licenses, contracts etc.
Reverse triangular merger
Reverse triangular merger is similar to forward triangular merger in the process of acquiring, but the only difference is that an acquired entity is liquidated.
In this, a subsidiary has a subsidiary and gains control over assets and contracts.
Depending on financial structure (cash or stock), it can be taxable or non-taxable.
In this, there are three parties, which are subsidiary company, parent company and targeted company.
Advantages
The advantages of reverse triangular merger are as follows −
- Targeted company can continue its operations.
- Liquidates.
- More preferred than forward triangular merger.
- No need to sign new contracts, licenses etc.
Disadvantages
The disadvantages of reverse triangular merger are as follows −
- Uses its stock.
- Cap on cash transactions (for tax benefits).
- 80% of seller stock should be acquired (for tax benefits).
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