In the corporate world one has heard the words â€œMerger and acquisitionâ€ umpteen number of times. The natural question in any mind can be whether they are one and the same. In fact they are not. There is a vast difference in their individual meanings even though the words are often used in one breath.
To understand what is the difference between the words â€œMergerâ€ and â€œAcquisitionâ€ one should have a fair idea as to what they actually mean and convey.
Definition: We shall consider the simplest form of definition without going into any business jargon.
Merger: When two or more entities combine or amalgamate to form a single entity it is known as a merger.
Acquisition: When one company takes over the entire functioning of the other company it is known as an acquisition.
Thus merger is an amalgamation whereas an acquisition is a takeover of interests.
Formation of a new company:
In a merger two companies usually of similar size fuse together voluntarily to form a new entity. Hence there are 3 companies involved in a merger. The merger results in the formation of a new company.
In an acquisition one company, usually a bigger and stronger of the two takes over the entire operations of the smaller and weaker company and merges into its own. This could be a friendly acquisition or a hostile acquisition. The smaller company usually loses its identity over time.
The main purpose of a merger is to improve operational efficiency and reduce competition.
In an acquisition the main purpose is instantaneous growth.
Size of the companies involved:
Merger involves two companies of usually similar sizes.
In an acquisition the size of the acquiring company will definitely be more than the acquired company.
There are more legal formalities to be observed in case of a merger as compared to that of an acquisition.
Position of the shareholders:
A merger is done to improve the efficiency of the business entities. The shareholders of both the old companies become share holders of the new company too.
In an acquisition the shares of the acquired company gets absorbed in the new company and they are issued the new shares but a hugely discounted value. It is never on a 1:1 basis.
Types of Mergers:
Mergers can be of various types such as horizontal, vertical, Co generic, Reverse or Conglomerate.
Acquisition can be hostile, friendly or a buyout.
In a merger there is a display of positive attitude whereas in an acquisition it is usually observed that the attitude is negative.
Merger, being a fusion of two similar sized enterprises, does not cause any attrition in the employees of their respective organizations.
In an acquisition it is seen that the employees of the acquiring organization look down upon the employees of the acquired company as someone who is inferior to them. This result in a lot of attrition involved as many employees of the acquired company prefer to leave rather than face discrimination.
In a merger the identities of both the companies are given equal importance whereas in an acquisition the identity of the acquired company goes up in smoke. It gets completely destroyed.
Thus it can be seen that even though the words merger and acquisition are used together, they represent two vastly different scenarios. These have been many mergers and acquisitions in the corporate world, some of which have been successful and some have failed. But that is part and parcel of the deal. There are no two opinions about that. Mergers and acquisitions have come to stay.
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