Difference Between Mergers and Acquisition

Mergers and acquisitions  refers to the consolidation of companies or assets through various types of financial transactions. Mergers and acquisitions can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions.

Mergers and acquisitions are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. As an aspect of strategic management, Mergers and acquisitions can allow enterprises to grow or downsize, and change the nature of their business or competitive position.

In the legal environment, a merger is a legal consolidation of two entities into one entity, whereas an acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets. From economic  point  of  view,  both  types   of  transactions   generally  result  in   the consolidation of assets and liabilities under one entity, and the distinction between a “merger” and an “acquisition” is less clear.

A transaction legally structured as an acquisition may have the effect of placing one party’s business under the indirect ownership of the other party’s shareholders, while a transaction legally structured as a merger may give each party’s shareholders partial   ownership  and  control  of  the  combined  enterprise.

A  deal   may  be politely called a merger of equals if both CEOs agree that joining together is in the best interest of both of their companies, while when the deal is unfriendly (that is, when the management of the target company opposes the deal) it may be regarded as an “acquisition”.

Difference Between Mergers and Acquisition

Mergers and acquisitions are resorted to by the corporate entities due to more than one reason. Some of the significant motives for mergers include the following:

  • Growth
  • Diversification of risk
  • Financial synergy
  • Building Empire

Mergers and acquisitions and restructuring commonly occur together, and can bleed into one another, as well as other, unusual but less dramatic business decisions:

The essential strategic rationale behind mergers and acquisition is what companies hope to achieve The various drivers behind strategic mergers establishing and maintaining strategic focus.

The main difference between mergers and acquisition lies in the way in which the combination of the two companies is brought about. In a merger there is usually a process of negotiation involved between the two companies prior to the combination taking place.

In an acquisition the negotiation process does not necessarily take place. In an acquisition company A buys company B. Company B becomes wholly owned by company A.

Another difference between mergers and acquisition is that a merger is a legal consolidation of two or more entities into one entity, a combination of two or more companies in which the assets and liabilities of the selling firm(s) are absorbed by the buying firm. Although the buying firm may be a considerably different organization after the merger, it retains its original identity. Whereas

An acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets. Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own

Acquisitions and Takeovers

“An acquisition”, is the purchase of by one company (the acquirer) of a substantial part of the assets or the securities of another (target company).

The purchase may be a division of the target company or a large part (or all) of the target company’s voting shares.” Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company’s shares or a combination of both. Further, an acquisition may be friendly or hostile.

In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target’s board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one.

Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.


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