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What is the Difference Between Merger and Acquisition? Complete Details

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Difference Between Merger and Acquisition

The main difference between merger and acquisition is that an acquisition permits one firm to take over another and rebrand it as its own, whereas a merger forces two businesses to give up their unique identities and create a new corporation. Naturally, HR specialists will need to respond differently to different kinds of business processes.

The combining of two or more business entities that necessitates the restructuring of their corporate order is referred to as a merger or acquisition. Their goal is to improve internal synergies in the organisation to boost productivity and competency. On the other hand, a merger and an acquisition differ significantly in their commencement, process, and conclusion.

Although many people believe the two concepts to be the same, they are not. In the corporate world, it is essential to comprehend these differences. Let’s examine the difference between an acquisition and a merger.

What is a Merger?

When two or more businesses combine to form a new company, this is known as a merger. The united business organisation typically takes on a new name, ownership or possession, and management. It might also consist of workers from both companies. The merging businesses pool their resources to pursue certain advantages. Even if doing so could lessen or dilute their special commercial powers, they still do this. Therefore, the choice to combine is always mutual or shared.

Gaining market share, expanding into new areas, cutting operating expenses, increasing revenue, and increasing profit margins are the objectives of consolidations and mergers. The size and breadth of operations are frequently used as benchmarks by the business entities who are parties to an agreement or contract. They consider each other to be on an equal basis. New shares are issued by the combined business and distributed to the existing shareholders of both parent companies in proportion.

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Types of Merger

Mergers can also happen via different ways. The types of mergers are mentioned below:

Conglomerate merger: Two businesses that have nothing in common decide to combine in order to share resources or lower their commercial risk.

Horizontal merger: When two businesses in the same sector combine, are roughly the same size, have comparable organisational structures, and are in the same market, the merger is referred to as horizontal. Usually, they are rival businesses who combine in order to save expenses and increase their market share.

Market extension mergers: These mergers take place when businesses in separate markets but within the same industry combine to get a significantly greater market share.

Product Extension Merger: In this scenario, two businesses that are in the same industry but make distinct products come together to increase production, reach a wider audience, and make more money.

Vertical merger: To boost efficiency, two companies in the same supply chain that produce distinct products unite to form a vertical merger.

What is an Acquisition?

The process by which one organisation or corporate body obtains or purchases another business is known as an acquisition. For the acquirer to take control of the other company, it must buy at least 51% of its equity. Usually, it happens between two organisations of varying sizes. A smaller and relatively more fragile commercial enterprise is purchased by a more financially stable entity. A hostile takeover occurs when a business assumes control of another without the consent of the target business.

The smaller group continues to operate under the name of the larger one. The personnel of the acquired or purchased business may be retained or fired by the acquirer. Actually, the acquired organisation operates under the secured organization’s name and stops using its former one. The obtained or acquired organisation rarely maintains its original identity after acquisition. Furthermore, no further shares are given. Adding resources from another organisation to gain a stronger competitive advantage in the market is the main objective of acquisitions.

Types of Acquisitions

Similar to merge, acquisitions also have different types. The different type of acquisitions are mentioned below:

Value creation: When a business attempts to acquire another, it enhances its performance and resells it for a profit.

Consolidation: When there is too much competition in the market, a company will buy out another company to put it out of business.

Acceleration: When a larger firm buys a smaller company, it’s an acceleration acquisition because the larger company’s products are more appealing and its larger resources allow the smaller company’s products to reach the market more quickly.

Acquisition of Resources: Since it is more advantageous to acquire another firm’s resources, talents, intellectual property, technology, or market position than to build their own, this scenario involves a company purchasing another company to obtain the necessary resources.

Speculation: To maximise its future potential growth, a larger firm may acquire a smaller company with an inventive new product. This is known as a speculative acquisition.

Difference Between Merger and Acquisition

To know the difference between merger and acquisition, check the table mentioned below for your reference:

MergerAcquisition
ProcedureA new business entity is created when two or more separate businesses come together.One business fully assumes control of another’s operations.
Mutual DecisionThe parties engaged in a merger agree to it mutually.Acquisition decisions are not always mutually agreed upon; when one company acquires another without the other’s approval, this is known as a hostile takeover.
Name of CompanyA new name is given to the merged entity.The parent business’s name is mostly used by the acquired company in its operations. However, if the parent firm permits it, the former may occasionally be able to keep its original name.
Comparative StatureThe parties involved in a merger are of similar stature, size, and scale of operations.The acquiring company is larger and financially stronger than the target company.
PowerThere is a dilution of power between the involved companies.The acquiring company exerts absolute power over the acquired one.
SharesNew shares are issuedNo new shares are issued

Also Read: What is the Difference Between Forward and Future Contract: Complete Details

Merger and Acquisition Examples

Throughout the past several decades, some of the most well-known and prosperous M&A transactions have taken place, such as:

  • Google’s acquisition of Android
  • Disney’s acquisition of Pixar and Marvel
  • Exxon and Mobile merger (a great example of a successful horizontal merger)

Why Do Companies Opt for Merger or Acquisition?

After learning about the differences between mergers and acquisitions, let’s quickly examine the reasons why businesses choose them. A merger or acquisition could be the result of any of the following circumstances:.

  • To go into a new product category or market
  • For launching a well-known brand into the market
  • Expanding market share
  • For removing rivals from the market
  • To reduce tax obligations
  • Gain or develop business expertise
  • To use the earnings of one business to cover the losses of another

Organizations engage in mergers and acquisitions for several reasons. Businesses must make mergers and acquisitions in order to progress.

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FAQs

Which party generally initiates a merger or acquisition?

A merger can be started by either side. Usually, the acquiring business initiates the proposal and bargaining process in an acquisition.

How are mergers and acquisitions regulated?

Acquisitions and mergers are regulated to prevent anti-competitive behavior. Some mergers and acquisitions are reviewed and approved by government bodies, such as antitrust authorities, to ensure they do not create monopolies or harm consumer interests.

How do mergers and acquisitions work?

Finding possible targets, carrying out due diligence, negotiating terms, and getting regulatory permissions are all part of mergers and acquisitions. 

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