What is the Difference Between Amalgamation and Acquisition?
🆚 Go to Comparative Table 🆚The main difference between amalgamation and acquisition lies in the process and outcome of the consolidation of two or more companies. Here are the key differences between the two:
Amalgamation:
- Involves the combination of two or more companies into a new entity.
- Assets and liabilities of the individually existing firms are consolidated and transferred into the new entity.
- The objective is to establish a unique entity capable of more effectively achieving new objectives while benefiting from greater economies of scale.
- Amalgamation is initiated generally by both the companies with an equal interest.
- Accounting and tax treatment involves consolidating the assets and liabilities of the absorbed company.
Acquisition:
- Refers to the buying company taking over at least 50% of the shares of the target company's business.
- The acquired company, also referred to as the "target company," is usually smaller in terms of valuation.
- Neither of the companies, the acquiring or the acquired firm, loses their existence; instead, they co-exist.
- The acquiring firm acquires the assets and liabilities of the acquired firm.
- Acquisition can occur without the assent of the acquired company, in what's known as a hostile takeover.
In summary, amalgamation involves the dissolution of existing firms and the formation of a new entity, while acquisition involves one company taking over another, with the acquired company retaining its existence. The objective of amalgamation is to create a new entity with greater synergy and economies of scale, whereas acquisition is often driven by the acquiring company's desire to expand its market reach, resources, and capabilities.
Comparative Table: Amalgamation vs Acquisition
Here is a table comparing the differences between amalgamation and acquisition:
| Feature | Amalgamation | Acquisition |
|---|---|---|
| Definition | A combination of two or more companies into a new entity, with the combined assets and liabilities of the former companies. | One company purchases another, usually by buying up enough of its stock, and takes on its assets and liabilities, without creating a new company as a result. |
| Formation | A new entity is formed, with the combined assets and liabilities of the former companies. | The acquiring company takes on the assets and liabilities of the acquired company, and no new company is formed. |
| Company Existence | Both companies involved in the amalgamation cease to exist, and a new company is formed. | The acquiring company continues to exist, and the acquired company is absorbed into it, ceasing to exist as a separate entity. |
| Purpose | To achieve more effective financial planning, increased control over the value chain, cost savings, and greater economies of scale. | To expand the acquiring company's business, eliminate competition, or exploit synergies. |
| Agreement | Amalgamations usually involve voluntary agreements between the parties involved. | Acquisitions can occur without the assent of the acquired company, in what is known as a hostile takeover. |
In summary, amalgamation involves the formation of a new entity with the combined assets and liabilities of the companies involved, while acquisition is the process of one company purchasing another and taking on its assets and liabilities.
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