Merger vs Acquisition: Difference and Comparison

In business, mergers and acquisitions are two of the most confusing and misunderstood words. The two words are used in place of one another, although they differ in meaning.

The two words, merger and acquisition, are used to join or connect two companies.

We hear these words in business news, but few people understand the main difference between them.

People who are interested in business or management and choose it as their career path know well the difference between them.

Both these words refer to combining two companies, but they are to be used in different scenarios.

Key Takeaways

  1. A merger combines two or more separate companies into a single entity, to enhance market position, increase efficiency, or diversify product offerings.
  2. An acquisition is a process of one company purchasing another, with the acquired company either being absorbed or operated as a subsidiary, to expand market presence or eliminate competition.
  3. Both mergers and acquisitions are forms of a corporate restructuring aimed at growth and expansion. Still, mergers involve the creation of a new, unified entity, while acquisitions involve one company gaining control over another.

Merger vs Acquisition

A merger is a situation in which two companies get merged and form a new company. They give  a new name to the company. Power of the company remains the same for both merging companies. In acquisition, one company takes over the other company. The acquiring company gets all the power and the name of the acquiring company can be used. 

Merger vs Acquisition
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Business Quiz

Test your knowledge about topics related to business

1 / 10

Office is a place where ___________.

2 / 10

Membership in a Co-Operative Society is?

3 / 10

Wages and taxes that a company pays are examples of:

4 / 10

A building jointly owned is called office________.

5 / 10

Who takes no active part in Business?

6 / 10

Modular furniture __________.

7 / 10

Whose Liability is limited to the extent of his capital to the firm?

8 / 10

Which of the following countries are part of the WTO?

9 / 10

Who is the servant of the firm with a share in the profits?

10 / 10

In order to gain a competitive edge on the competition, some companies focus on:

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Comparison Table

Parameter of ComparisonMergerAcquisition
DefinitionThe powers remain the same for both merging companies.An acquisition is a situation where one company takes over the other company.
PowerIn a merger, a new name is given to the company.The ultimate powers lie in the hand of the acquiring company.
NameIn mergers, there are more legal formalities as compared to acquisitions.In the situation of acquisition, the name of the acquiring company’s name can be used.
Legal formalitiesIn mergers, there are more legal formalities compared to acquisitions.In acquisition, there are fewer legal formalities as compared to a merger.
LevelIn a merger, two or more companies that consider each other to be of the same level come together to form a new company.In acquisition, the company which is acquiring the other company is considered larger and on a higher level.

 

What is Merger?

A merger refers to the process in which two or more different companies, businesses, or entities come together to form a new company or work on a common goal.

A new ownership and management structure is formed.  Their strategies are for better approaches to work towards a common desired goal.

Mergers are done to work towards a common desired result, decrease operational costs, increase profits, and become larger in markets.

Usually, mergers are voluntary or friendly, and it includes businesses that are mostly of the same size and level.

Advantages of merger:

  1. Mergers help to reduce the operational costs of companies.
  2. It helps two or more companies to work towards a common objective.
  3. It helps to expand market share. When two or more companies merge and form a single new company, this new company obtains a larger market share.
  4. In case the businesses are not earning profits, mergers help to prevent the shutting down of such businesses.
  5. Mergers help to decrease weaknesses and gain a competitive advantage in the market.
  6. When Companies merge, they share skills, knowledge, resources, and technology which helps to improve the overall growth of the merged companies.

Types of mergers:

  1. Horizontal
  2. Vertical
  3. Reverse
  4. Conglomerate
  5. Congeneric

Legal formalities:

In the case of mergers, the companies have to mention all the essential details in writing

And they also have to submit several documents, such as the latest yearly reports, sales and purchase agreements, and all necessary documents related to the merger decision.

The governing merger laws differ from place to place and country to country.

 

What is Acquisition?

An acquisition is a situation in which one company takes over the other.

The company taking over obtains more than 50 per cent of shares for the acquisition. Mostly, acquisitions do not happen on a friendly basis.

In the acquisition case, the company taking over controls the other company. They are free to take any decisions, such as decisions regarding resources, structures, staffing, and so on.

For the acquired company and its employees, it creates uneasy and insecure feelings.

Advantages of acquisition:

  1. It reduces the costs of operation.
  2. Acquisition reduces the amount of taxes.
  3. It helps to defeat market entry barriers that the company was previously facing.
  4. The acquisition helps to increase the market shares of the company.
  5. In an acquisition, the acquiring companies get access to larger capital.
  6. When two companies come together, they obtain specialists such as human resource specialists or financial specialists.
acquisition

Main Differences Between Merger and Acquisition

  1. A merger is the joining of two or more companies or businesses to form a new company, whereas an acquisition refers to the takeover of one entity by another.
  2. In mergers, there are more governing laws and formalities than in acquisitions.
  3. A new name is given to the company during the merger of two or more companies. On the other hand, mainly the name of the acquiring company is used during the acquisition.
  4. In a merger, both companies strengths and power remain the same. The acquiring company gets the final strength and power in the acquisition situation.
  5. A merger happens when two or more companies at the same level come together and join to form a new company. In acquisition, the company which is taking over the other company is regarded as larger and on a higher level.
  6. A merger is a friendly action, and it is a mutual decision of both the merging companies, whereas acquisition may be either voluntary or involuntary and may be unfriendly.
Difference Between Merger and Acquisition

References
  1. https://journals.sagepub.com/doi/abs/10.1177/0021886305281902
  2. https://www.nber.org/papers/w18346.pdf

Last Updated : 11 June, 2023

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28 thoughts on “Merger vs Acquisition: Difference and Comparison”

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    2. Avatar of Williams Charlie
      Williams Charlie

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  9. Avatar of Mason Griffiths
    Mason Griffiths

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    2. Indeed, the advantages and legal formalities highlighted here offer a well-rounded perspective on the intricacies of corporate restructuring.

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