Difference Between Merger And Acquisition

Mergers and Acquisitions are vital business strategies. A merger combines two equal companies into one. An acquisition is when one company buys another. Both aim to grow and enhance the market presence of a business. However, they differ in process, structure, and outcome. Many mistake these two concepts to be the same, but they aren’t. Understanding these differences is key in the business world. Lets us understand the difference between merger and acquisition.

Content

• What is a Merger?
• Types of Mergers
• What Is An Acquisition?
• Types of Acquisitions
• Are Mergers And Acquisitions The Same?
• Difference Between Merger And Acquisition

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What is a Merger?

The merger of companies occurs when two or more legally independent companies decide to unite their activity by uniting their assets to create a new company. The merger implies a change for all parties since the partners of both companies eliminate their old company, transferring all their assets to the new company. This, in turn, issues shares distributed to the shareholders of the companies that have been dissolved. This is called pure fusion.

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Types of Mergers

The most common types of mergers are:

1. Conglomerate merger: In a conglomerate merger, two companies decide to merge, without having anything in common, to share assets or reduce their commercial risk.
2. Horizontal merger: A merger is said to be horizontal when two companies in the same industry are consolidated, more or less the same size, with similar structures, and are within the same market. They are usually competitors who merge to cut costs and gain more market share.
3. Market extension merger: Market extension mergers occur between companies in the same industry or business sector but in different markets that merge to obtain a much larger market share.
4. Product Extension merger: In this case, two companies in the same industrial sector but produce different products merge to expand their production, reach more customers, and obtain higher profits.
5. Vertical merger: A vertical merger is when two companies producing different products in the same supply chain merge to increase their efficiency.

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What Is An Acquisition?

The acquisition of companies is an agreement whereby a company partially acquires another company. The conditions of the agreement will determine the degree of predominance of one or the other. Generally, the criterion of those that have made the most significant contributions —logistical, physical, economic— is usually imposed.

It is essential to understand that the original company may or may not disappear and that the partners in the divided partnership will also be partners in the new partnership.

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Types of Acquisitions

There are five types of acquisitions:

1. Value creation: When an acquisition seeks value, the acquiring company improves its performance and then sells it again at a profit.
2. Consolidation: A company acquires another company to eliminate it from the competition since the market is oversupplied.
3. Acceleration: An acceleration acquisition occurs when a larger company acquires a smaller company because its products are attractive and its more significant resources accelerate market access for the acquired smaller company’s products.
4. Acquisition of resources: In this case, a company acquires another company to obtain the resources, skills, intellectual property, technologies, or market position they need, since it is more profitable than developing their own.
5. Speculation: A speculative acquisition occurs when a larger company acquires a smaller company with an innovative new product to maximise its future growth potential.

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Are Mergers And Acquisitions The Same?

No, mergers and acquisitions of companies are not the same. Acquisitions are agreements in which a company acquires all or part of the share capital of the other. It usually happens when a larger company buys a smaller company, which becomes part of the buying company. 

Let us understand the difference between merger and acquisition.

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Difference Between Merger And Acquisition 

Conclusion

Difficulty in integrating two or more different business cultures, teams, and templates makes acquisitions more frequent than mergers. This way, the acquiring company imposes its culture, mission, vision, and values ​​on the acquired company. We hope this article helped you to understand the difference between merger and acquisition. Any company going through a merger or acquisition must follow a well-drawn plan and have clear objectives to ensure business success.