Mergers vs Acquisitions

Difference Between Mergers and Acquisitions

Merger refers to the consolidation of two or more business entity to form one single joint entity with the new management structure, ownership and name capitalizing on its competitive advantage and synergies whereas acquisition is the case where one financially strong entity takeover or acquire less financially strong business entity by acquiring all shares or shares having value greater than 50% of the value of its total shares.

Both are corporate strategies aimed at increasing the present capabilities of a company. Sometimes both terms are misunderstood as merely adjoining two or more companies, but both these terms are quite different.

Mergers-vs-Acquisitions

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Mergers vs. Acquisitions Infographics

Merger-vs-Acquisition

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Key Differences

  • One of the key differences is that the merger is the process where two or more companies agree to come together and form a new company; acquisition is the process by which a financially strong company takeovers a less financially strong company by buying more than 50% of its shares.
  • Merger is a strategic decision made after careful discussion and planning between the companies going to be merged. Hence there are fewer chances of a chaotic atmosphere after merging. The acquisition is also a strategic decision, but in most cases, the decision is not mutual. Hence, there is a lot of hostility and chaos after an acquisition has been made.
  • Companies that are merged usually consider each other of equal stature, and hence they help each other out to create a synergy. In the case of an acquisition, the company that acquires imposes its will on the acquired company, and the acquired company is stripped of its freedom and decision-making. The power difference between the acquired and acquiring companies is huge.
  • Since the merger requires a whole new company to be formed, it needs many legal formalities and procedures to be followed. The acquisition doesn’t have many legal formalities and paperwork to be filled as compared to the merger.

Merger vs. Acquisition – Comparative Table

Basis for comparisonMergerAcquisition
DefinitionThe merger is a process in which more than one companies come forward to work as one.The acquisition is a process in which one company takes control of another company.
TermsConsidered to be friendly and planned.Considered to be hostile and sometimes involuntary (not always)
TitleA new name is given.The acquired company comes under the name of the acquiring company.
ScenarioTwo or more companies that consider each other on equal terms usually merge.Acquiring a company is always larger than the acquired company.
PowerThe power-difference is almost nil between the two companies.The acquiring company gets to dictate terms.
StocksMerger leads to new stocks being issued.In an acquisition,In An Acquisition,An acquisition is defined as the act of taking over or gaining control of all or most of another entity's stocks by purchasing at least fifty percent of the target company's stock and other corporate assets. read more there are no new stocks issued.
ExampleMerging of Glaxo Wellcome and SmithKline Beecham to GlaxoSmithKlineTata Motors acquisition of Jaguar Land Rover

Conclusion

When we compare mergers and acquisitions, we may decide that a merger is always better than acquisition. But just like how each coin has two sides, both have their strengths and weaknesses.

Companies make these decisions based on the situation they are at and the resultant discussions that they have had with the other companies. So, it is wise for companies to carefully analyze the position that they are in and take the strategic decision that better suits the scenario and demands.

Recommended Articles

This article has been a guide to Merger vs. Acquisition. Here we discuss the top differences between merger and acquisition along with infographics and a comparison table. You may also have a look at the following articles for gaining further knowledge –

Reader Interactions

Comments

  1. Raju says

    It’s a good article, short and sweet good to read and helps to mitigate the misuse of time…
    Thanks

    • Dheeraj Vaidya says

      Thanks for your kind words!

  2. gary says

    excellent information to know about the items to invest with these items

  3. Faz says

    Well explained in simple way

    • Dheeraj Vaidya says

      Thanks for your kind words!

  4. Mratunjay singh parmar says

    Easily understanding language and good description

    • Dheeraj Vaidya says

      Thanks for your kind words!

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