Amalgamation is the consolidation or combination of two or more companies known as the amalgamating companies usually the companies that operate in the same or similar line of business to form a completely new company whereas merger refers to the consolidation of two or more business entity to form one single joint entity with the new management structure and new business ownership where both the entities join hands and decide to merge together as a one unit with a new name to gain the competitive advantage and synergies in operations.
Amalgamation vs Merger Differences
The merger is a process wherein two or more companies/entities are combined to form either a new company or an existing company absorbing the other target companies. Basically, it’s a process to consolidate multiple businesses into one business entity.
The Merger processMerger ProcessA merger and acquisitions (M&A) agreement refers to an agreement between two existing companies to merge into a new company, or the purchase of one company by another, which is done generally to benefit from the synergy between the companies, expand research capacity, expand operations into new segments, and increase shareholder value, among other things. may involve two possibilities in the above example:
- A new entity XYZ Corporation will be formed to house the asset and liabilities of existing entities. Hence survival of existing entities ABC Corp and PQR Corp cease to exist.
- ABC Corporation being relatively more robust entity absorbing PQR Corp, hence the resultant entity being the absorbing company, i.e., ABC Corporation
AmalgamationAmalgamationAmalgamation is the consolidation or combination of two or more companies, known as amalgamating companies, usually in the same or similar line of business, to produce a new legal entity, known as the amalgamated company, with the same shareholders, assets, and liabilities. is a type of merger process in which two or more companies combine their businesses to form an entirely new entity/company. Amalgamation is an appropriate arrangement wherein two or more companies operate in the same business; thus, Amalgamation helps in reduction in operational cost due to operational synergy.
ABC Corp and XYZ Corp will cease to exist after the Amalgamation process resulting in a new entity, JKL Corporation.
Amalgamation vs. Merger Infographics
Key Differences Between Amalgamation and Merger
- There is a very fine difference as both processes are a way to a consolidation of multiple companies.
- Amalgamation is a type of consolidation processes used under a merger.
- Amalgamation results in the formation of an entirely new company. However, a merger is a consolidation process wherein the resultant company may be a new company or an existing company.
- Minimum two companies are involved in a merger; however, a minimum of three companies are required for the amalgamation process.
- The size of the companies involved in the amalgamation process is of a comparable level. However, the size of companies in the merger process is a different size as an absorbing company is expected to be relatively larger than the size of an absorbed company.
- Asset and liabilities of the existing entities in the amalgamation process are transferred to an entirely new entity. However, assets and liabilities of the absorbed entity in the merger process are consolidated into the absorbing entity.
- Shares of the absorbing company are given to shareholders of the absorbed company in the merger process. However, shares of the new entity formed in the process are given to the shareholders of the existing entities in the amalgamation process.
|Definition||Two or more companies are combined to form either a new company or an existing company absorbing the other target companies. A merger is a process to consolidate multiple businesses into one business entity. All the Amalgamations are part of the Merger.||It is a type of merger process in which two or more companies combine to form a new entity. All the mergers are not Amalgamation.|
|Number of Entities Required||Minimum 2 companies are required as one absorbing company will survive after absorbing the target company.||Minimum 3 companies are required as an Amalgamation of two companies results in a new entity.|
|Size of the Companies||The size of the absorbing company is relatively larger than the absorbing company.||The size of the target companies is comparable.|
|Resultant Entity||One of the existing company may absorb the target company for a merger, hence may retain its identity.||Existing companies lose their identity, and a new company is formed.|
|Impact on Shareholders||Shareholders of the absorbing entity retain their ownership; however, shareholders of the absorbed entity gain ownership in the absorbing company.||All the shareholders in the existing entities become shareholders in the new entity.|
|Impact on Shares||Shares of the absorbing company are given to shareholders of the absorbed company.||Shares of the new entity formed in the process are given to the shareholders of the existing entities.|
|Driver for Consolidation||Mergers are mostly driven by the absorbing Company.||The amalgamation process is initiated by both companies interested in the Amalgamation process.|
|Accounting Treatment||Asset and liabilities of the absorbed/acquired company is consolidating.||Asset and liabilities of the existing entities are housed and transferred into the Balance sheet of the newly formed entity.|
|Examples||Consolidation of two entities, Tata Steel and UK-based Corus Group, with the resulting entity being Tata Steel. Corus Group lost its identity in the process.||Consolidation of two entities Mittal Steel and Arcelor, resulting in the new entity named Arcelor Mittal. Both Mittal Steel and Arcelor Group lost their identity in the process.|
Why Companies go for Amalgamation and Merger?
- Diversification into multiple industries without going through hurdles of starting afresh
- To achieve the Economies of Scale for cost optimization, access to a larger market, effective utilization of resources, etc.
- To achieve Operational Synergy by targeting companies in the same industry/similar product linesIndustry/similar Product LinesProduct Line refers to the collection of related products that are marketed under a single brand, which may be the flagship brand for the concerned company. Typically, companies extend their product offerings by adding new variants to the existing products with the expectation that the existing consumers will buy products from the brands that they are already purchasing..
- To achieve Growth targets in lesser time.
- The advantage in Taxation by combining a loss-making company with a profit-making company, thereby reducing the tax liabilities
- Reduced Competition in a specific industry by combining two entities
- To achieve Effective Financial Planning with a resultant entity having a bigger balance sheet and to utilize financial resources effectively.
- Increased Control Over Value Chain in a specific industry by way of forward integration and backward integrationBackward IntegrationBackward Integration is a vertical integration type in which a Company buys or integrates with its supplier firms to improve efficacy, save costs, & gain more control over the production process.
Both are the processes of consolidation of two or more companies into a new entity or an existing entity absorbing the target entity. In the process, a resulting entity may be a new entity, or it may be an existing entity. Amalgamation is a type of consolidation process under a merger.
In the amalgamation process, two company combines to form a new entity. And merger helps companies achieve their goals such as growth, increase in shareholders’ value, an increased economy of scale, synergy, access to larger market/new geographies, entry into a new industry, etc.
Amalgamation vs. Merger Video
This article has been a guide to the Amalgamation vs. Merger. Here we discuss the top difference between Amalgamation and Merger along with infographics and a comparison table. You may also have a look at the following articles –