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.
- A MergerMergerMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm. is a process by which two or more companies make a strategic decision to come together and merge as one company with a new name. Merger helps the company to share information, technology, resources, etc. thereby increasing the overall strengths of the company. The merger also helps in reducing the weakness and gain a competitive edge in the market. Merger always happens on friendly terms as the information is already passed to the directors, employees, etc. Proper planning is done on the structuring of the new company.
- The acquisition is the process by which one company acquires another company. The financially strong company acquires more than 50% of sharesSharesOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet. to take over another company. The acquisition doesn’t always happen on friendly terms. It can be a forced move by a company to acquire another company for various reasons like gaining new markets or gaining new customers or reducing competition etc. But acquisition can also happen when one company decides to be acquired by another company without any hostility. In an acquisition, the transition is not always smooth as the company that took over will impose all the decisions on staffing, structure, resources, etc. and thereby creating an air of unease to the company that was acquired and to its employees.
Mergers vs. Acquisitions Infographics
- 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 comparison||Merger||Acquisition|
|Definition||The 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.|
|Terms||Considered to be friendly and planned.||Considered to be hostile and sometimes involuntary (not always)|
|Title||A new name is given.||The acquired company comes under the name of the acquiring company.|
|Scenario||Two or more companies that consider each other on equal terms usually merge.||Acquiring a company is always larger than the acquired company.|
|Power||The power-difference is almost nil between the two companies.||The acquiring company gets to dictate terms.|
|Stocks||Merger leads to new stocks being issued.||In an acquisition,In An Acquisition,Acquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion. there are no new stocks issued.|
|Example||Merging of Glaxo Wellcome and SmithKline Beecham to GlaxoSmithKline||Tata Motors acquisition of Jaguar Land Rover|
When we compare mergers and acquisitionsMergers And AcquisitionsA 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., 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.
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 –