Mergers and acquisitions (M&A) now play a central role in corporate development strategies. In an economic environment characterized by intensified competition, accelerating technological transformation, and the need to identify new drivers of growth, many companies are increasingly opting for external growth—that is, the acquisition of other firms.
Whether the goal is to capture new markets, rapidly scale the business, integrate strategic expertise, or boost profitability, mergers and acquisitions serve as a primary tool for value creation. They enable companies to achieve in a matter of months what might otherwise require years of internal development.
However, the generic term “merger and acquisition” encompasses various distinct legal mechanisms, each serving different economic objectives. Depending on the structure chosen, the impact on a company’s organization, governance, profitability, or competitiveness can vary significantly.
I. The Main Forms of Mergers and Acquisitions: Mechanisms Tailored to Different Objectives
- Merger by absorption: a tool for consolidation and rationalization
A merger by absorption is a transaction in which one company—the “acquiring company”—takes over the entire estate of another company—the “acquired company.” The acquired company ceases to exist, though it does not undergo a formal liquidation process.
In other words, two companies become one: the acquired company disappears, while the acquiring company continues to exist, assuming all the assets, liabilities, contracts, and operations of the acquired entity. A merger by absorption helps simplify a company’s legal organization and ensures the continuity of its contractual relationships, while centralizing governance within a single structure to facilitate decision-making and the management of business activities.
- Merger by creation of a new company: building a joint venture
A merger by the creation of a new company is a transaction in which Company A and Company B decide to combine to form Company C. The original companies cease to exist, and all their assets, contracts, rights, and liabilities are transferred to the newly created entity, in exchange for which the original shareholders receive securities in the new company.
This type of transaction offers the advantage of allowing the participating companies to build a joint project within an entirely new structure, without any one entity appearing dominant or absorbed. It facilitates the pooling of resources, expertise, and client bases, while providing an opportunity to define a new governance model, a new identity, and a shared strategy. A merger by the creation of a new company is particularly well-suited for situations where companies wish to establish a balanced partnership and develop their business together under a common banner.
A well-known example is the 1997 combination of Guinness and Grand Metropolitan—two major British groups—which led to the creation of Diageo, now a global leader in the spirits industry. This transaction clearly illustrates the rationale behind such a move: bringing together the operations and know-how of two enterprises into a single group, and pursuing their development under a new, shared identity.
- Acquisition of securities: gaining control without the disappearance of the target company
The acquisition of securities is a transaction in which an individual or a legal entity purchases all or part of the shares or equity interests of a company in order to gain control over it. Unlike a merger by absorption or a merger through the creation of a new company, the target company does not cease to exist; it retains its legal identity, contracts, employees, and assets—only its ownership structure (shareholding) changes. This type of transaction allows an acquirer to rapidly gain control of a company while ensuring the continuity of its operations. It has the advantage of generally being simpler to implement than a merger, as it entails neither a universal transfer of assets and liabilities nor the dissolution of the target company.
It also enables the gradual integration of a company into a group while preserving its brand, organizational structure, and business relationships. For instance, in 2017, LVMH acquired an 80% stake in RIMOWA for 640 million euros. This transaction allowed the group to take control of the German luggage manufacturer and incorporate it into its portfolio of “Maisons,” without causing RIMOWA to disappear; the latter continued its operations under its own identity and brand.
The acquisition of equity interests is therefore a preferred solution when the objective is to expand business operations or strengthen market presence without undergoing a legal reorganization as extensive as a merger.
- Universal transfer of assets and liabilities (TUP): a simplified restructuring method within corporate groups
A universal transfer of assets and liabilities—known in French as a *transmission universelle de patrimoine* (TUP)—is a transaction that allows a company (Company A), which holds 100% of the share capital of another company (Company B), to dissolve the latter and automatically acquire all of its assets, contracts, rights, and debts. The subsidiary ceases to exist, without the need for a formal liquidation process.
This mechanism is frequently used within corporate groups to streamline their organizational structure. Unlike a merger by absorption, it can only be carried out when the parent company already owns the entire share capital of its subsidiary.
As an example, in 2005, France Télécom (now known as Orange) executed a universal transfer of assets and liabilities involving Cogecom, a subsidiary in which it held a 100% stake. This transaction resulted in the disappearance of Cogecom—without the need for formal liquidation—and the transfer of its entire estate to France Télécom.
Its primary advantage lies in its simplicity: it allows for the elimination of a company that has become redundant, the consolidation of activities within a single structure, and a reduction in administrative costs, thanks to less burdensome formal requirements and an implementation process that is generally faster than a standard merger.
II. Implementing Mergers and Acquisitions
Executing a merger or acquisition cannot be improvised. Whether it involves a merger by absorption, a merger through the creation of a new entity, an acquisition of shares, or a universal transfer of assets and liabilities (*transmission universelle de patrimoine* – TUP), the process requires rigorous preparation to ensure the transaction is secure.
The first step generally involves conducting a comprehensive audit of the company in question. This analytical phase examines the firm’s commercial, legal, employment, tax, financial, and accounting situation to identify any potential risks, liabilities, or irregularities that could affect the terms of the transaction, its price, or its future profitability. This audit serves as an essential decision-making tool, enabling the parties to negotiate the deal with a full understanding of the facts.
Depending on the nature of the proposed transaction and the legal structure of the companies involved, additional formalities may be required. In the case of a merger, for instance, it may be necessary to appoint a “merger auditor” (*commissaire à la fusion*). This independent expert is tasked with verifying the value of the assets contributed and assessing the fairness of the share-exchange ratio, where applicable. Their involvement ensures the transparency of the transaction, protects the interests of the shareholders, and strengthens the legal security of the merger.
Following these initial assessments, the parties typically enter into negotiations regarding the key features of the transaction. These include the valuation of the company, the acquisition price, payment terms, warranties provided by the seller, and the legal, tax, and financial conditions of the proposed restructuring. This phase is critical, as it defines the economic balance of the transaction and allows for the anticipation of potential challenges that might arise after its completion. The business lawyer plays a central role in the execution of the transaction. They guide the parties throughout the negotiations, identify risks, propose appropriate protective mechanisms, and ensure that their client’s interests are safeguarded. Their involvement extends to drafting all the legal documentation required to carry out the transaction—including letters of intent, memoranda of understanding, merger agreements, asset and liability warranties, share transfer agreements, minutes of general meetings, and, more generally, any documents necessary to ensure the legal security of the transaction.
III. Economic and Financial Benefits of Mergers and Acquisitions
While mergers and acquisitions (M&A) entail significant costs and require rigorous preparation, they often represent a strategic investment for companies. When structured correctly, they can enhance a company’s economic performance, optimize the use of its resources, and strengthen its market position for the long term.
- Seeking Synergies and Optimizing Costs
One of the primary objectives of an M&A transaction is the realization of synergies. By bringing multiple companies together into a single entity, it becomes possible to pool certain functions—such as accounting, human resources, procurement, IT systems, or administrative services.
This organizational streamlining helps reduce operating costs, eliminate redundancies, and improve the company’s operational efficiency. Consolidating teams and physical assets can also optimize internal processes and provide greater bargaining power when dealing with suppliers and service providers.
In the hospitality and restaurant sector, these benefits are particularly significant. Bringing several establishments together allows for the centralization of procurement—such as food, beverages, linens, or cleaning supplies—thereby generating substantial economies of scale. It also facilitates the pooling of support functions, including administrative management, accounting, marketing, and human resources. Furthermore, the establishments involved can gain better commercial visibility, access a broader customer base, and manage their human resources more effectively—a key advantage in a sector that continues to face significant recruitment challenges.
The savings generated in this way can be reinvested into renovating properties, enhancing the customer experience, developing new concepts, or driving the company’s digital transformation. Ultimately, these productivity gains help strengthen the competitiveness and profitability of the business.
- Strengthening the company’s financial capacity
Mergers and acquisitions enhance the financial robustness of the companies involved. Pooling resources, assets, and investment capabilities facilitates access to financing and often improves a company’s credibility with banks, investors, and business partners.
Increasing the size of a company can also boost its bargaining power with suppliers, making it possible to secure more favorable commercial terms. Furthermore, diversifying business activities or revenue streams helps to better distribute economic risks.
In the hospitality and restaurant sector, this strengthened financial capacity can facilitate the funding of renovations, the opening of new establishments, or the acquisition of existing business assets. It also enables companies to better withstand fluctuations in business activity and rising costs, while offering greater long-term development prospects.
- A Favorable Tax Framework for Mergers and Acquisitions
Merger transactions benefit from a particularly favorable tax regime designed to facilitate corporate restructuring. By its very nature, a merger entails the transfer of a set of assets and liabilities between companies, which can give rise to significant tax consequences. To prevent an immediate tax burden from hindering such reorganization efforts, the legislature has established a preferential regime based on the principle of tax neutrality.
Consequently, any capital gains that might otherwise be recognized upon the transfer of assets from the absorbed company to the absorbing company are not subject to immediate taxation. The absorbing company assumes the transferred assets at the tax values they held in the accounts of the absorbed company, thereby ensuring continuity in the tax treatment of those assets. The taxation of these capital gains is not eliminated, but merely deferred until the assets in question are subsequently sold. This mechanism allows companies to carry out restructurings without incurring an immediate tax burden that could jeopardize the transaction or tie up a significant portion of their cash flow.
The regime applicable to mergers is also highly advantageous regarding tax losses. Under certain conditions, the carry-forward tax losses of an absorbed company may be transferred to the absorbing company, allowing the latter to offset them against future profits and reduce its tax liability in subsequent financial years. However, this transfer is subject to strict regulation. In many cases, it requires prior authorization from the tax authorities, who verify—among other things—that the transaction is supported by a genuine economic rationale and that the business activity that generated the losses continues after the merger. This oversight is intended to prevent transactions whose sole objective is to exploit tax losses accumulated by a company. When the legal requirements are met, the ability to retain these tax losses represents a significant advantage when assessing the overall merit of a merger.
Furthermore, merger transactions benefit from a favorable regime regarding registration formalities. Legal instruments documenting a merger between corporate entities or organizations subject to corporate income tax are exempt from registration fees—even when they include provisions for the assumption of liabilities associated with the transferred assets.
Beyond the opportunities presented by mergers and acquisitions lie legal, tax, and financial considerations that are often critical to their success. Engaging a business lawyer allows executives to receive guidance on structuring the transaction, identifying potential risks, and safeguarding the interests of all parties involved at every stage of the project.