Merger and acquisition – these two terms are often used as if they are synonyms, but they have varying implications. But, they don’t mean the same. In business circles, the term mergers and acquisitions are often abbreviated as M & A. Read on to find out what the difference between a merger and an acquisition is.
The differences between the two words are vital to negotiate, value, and structure the transaction of a client. Both the terms involve one or more firms buying a part of a company or the whole company. The main difference between merger and acquisition lies in the way in which they are financed.
What is a Merger?
A merger is regarded to have been done when two companies consent on the decision of becoming one- it is a mutual decision. Here, companies agree to be a single company and continue as one instead of two separate companies. So, the stocks of the newly merged company are issued and those of old firms (the stocks of both the firms before uniting) are surrendered. The kind of merger that happens depends on the natural of the merging organizations- it can be vertical merger, horizontal merger or congeneric (or conglomerate) merger. If two companies of same product line are merging, it is regarded to be horizontal merging. On the other hand, if two companies in different product line are merging, it is said to be vertical merging- in this kind of merger their products improves the value of the company together. Finally, when the merging companies don’t have any similar product line at all, it is said to be congeneric merging.
Types of Mergers
Depending upon the way in which, the merger has been financed, it can be classified as consolidation mergers and purchase mergers. The former is termed as a merger in which a new company is established by bringing both the companies together. The latter is termed as a merger in which the target firm is bought by the bidder.
What are Acquisitions and How Are They Different?
Now, moving our focus over to acquisition, it basically refers to purchasing one company by another. It can either be a hostile acquisition or friendly acquisition. In friendly takeover, the executives of the companies negotiate, while in a hostile takeover, the bidder will proceed to seek even if the target company is not willing to offer consent. Typically, bigger companies acquire smaller companies.
Though, in few situations, a smaller firm may take over the larger one and just keep its name for the new company, which is the outcome of the acquisition. Such a takeover is known as reverse merger.
In simple words, a business agreement is termed as a merger when the CEOs of both the firms mutually agree that union is in keeping the best interest of both the firms in mind. An acquisition happens when the target firm does not want to be bought. Such deals are also known as takeovers. Click here to learn more about mergers and acquisitions.
The Nitty-Gritty of the Deal Matter the Most!
The type of purchase done determines whether the deal is an acquisition or a merger. In other words, the primary distinction lies in the way in which the deal is communicated to and accepted by the target firm’s shareholders, board of directors, and employees.
Usually, it is easily said that success can be achieved in acquisitions, but it is always easier said than done. In fact, many studies suggest that almost half of the documented acquisitions have failed considerably and either gone out of existence or entered into new mergers.