What is the Difference Between Merger and Acquisition?
🆚 Go to Comparative Table 🆚The main difference between a merger and an acquisition lies in the way the companies involved in the transaction come together. Here are the key differences:
- Merger: A merger occurs when two separate entities combine forces to create a new, joint organization. In a merger, both companies agree and provide consent to join forces, usually sharing equal decision-making power. The merged entity typically takes on a new name, ownership, and management composed of employees from both companies. Mergers are often voluntary and involve companies that are roughly the same size and scope.
- Acquisition: An acquisition refers to the takeover of one entity by another. In an acquisition, one company completely takes over the operations of another, and the smaller company ceases to exist, with its assets becoming part of the acquiring company. Acquisitions are sometimes called takeovers and generally carry a more negative connotation than mergers.
Both mergers and acquisitions may be completed to expand a company's reach or gain market share in an attempt to create shareholder value. However, the two terms have become increasingly blended and used in conjunction with one another, which can lead to confusion.
On this pageWhat is the Difference Between Merger and Acquisition? Comparative Table: Merger vs Acquisition
Comparative Table: Merger vs Acquisition
Here is a table comparing the differences between mergers and acquisitions:
| Basis for Comparison | Merger | Acquisition |
|---|---|---|
| Definition | The merger is a process in which more than one companies come forward to work as one. | The acquisition is a process in which one company takes control of another company. |
| Terms | The terms "merger" and "acquisition" are often used together, but they have distinct meanings. | The two terms have become increasingly blended and used in conjunction with one another. |
| Initiation | A merger occurs when individual organizations decide to join their forces and give rise to a new business entity. | An acquisition is a situation wherein a larger, financially stronger organization takes over a smaller one. |
| Procedure | Mergers require many legal formalities and procedures to be followed, as a new company is formed. | Acquisitions don't have as many legal formalities and paperwork to be filled out compared to mergers. |
| Outcome | A mutual decision, resulting in a new business entity with shared ownership and management. | A strategic decision, usually not mutual, where one company takes control of another and the acquired company loses its independence. |
| Power Difference | Companies that merge usually consider each other of equal stature, and hence they help each other. | The power difference between the acquired and acquiring companies is significant. |
| Reasons | Mergers are aimed at achieving better synergies within the organization to increase their capabilities. | Acquisitions are often done to lower operational costs, acquire talent, alter supply chains, or acquire important assets that would be challenging to acquire independently. |
In summary, a merger is a mutual decision where two companies of similar size and stature join forces to create a new entity, while an acquisition is a strategic move where a larger company takes control of a smaller one, often for specific assets or resources.
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