Difference Between Mergers and Acquisitions

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 these terms are quite different.

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  • 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.read more 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 share information, technology, resources, etc., thereby increasing the company’s overall strengths. The merger also helps reduce 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.read more 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 acquire 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., thereby creating an air of unease to the company that was acquired and its employees.

Mergers vs. Acquisitions Infographics

Key Differences

  • One of the key differences is that the merger is when two or more companies agree to come together and form a new company; acquisition is when a financially strong company takes over a less financially strong company by buying more than 50% of its shares.The 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 the decision is not mutual in most cases. Hence, there is a lot of hostility and chaos after an acquisition has been made.The power difference between the acquired and acquiring companies is huge. 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 it imposes its will on the acquired company, and the acquired company is stripped of its freedom and decision-making. 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 compared to the merger.

Merger vs. Acquisition – Comparative Table

Conclusion

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

Companies make these decisions based on their situation 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, infographics, and a comparison table. You may also have a look at the following articles for gaining further knowledge –

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