Difference between Mergers and Acquisitions

Mergers and Acquisitions are a business strategy and guarantee a company’s rapid expansion. These facilitate an organization’s external growth and refer to the joining of two or more business entities that entail a restructuring of their corporate order. Companies of any size can grow through acquisitions or by merging with another company that is already in operation. Through a Merger, two businesses come together to form a single or new organization. On the other hand, an Acquisition occurs when one business acquires another, and the acquired business might or might not keep its original name.

What is a Merger?

When two or more businesses individually consolidate to form a new enterprise, it is known as a Merger. The merged entity takes up a new name, ownership, and management that is composed of employees from both companies. The decision to merge is taken mutually since the merging companies combine their forces to seek certain benefits at the cost of diluting their powers individually. In simple terms, It is the union of two businesses into one. The motive behind the Merger is to expand market share, gain entry into new markets, reduce operating costs, and widen profit margins.

Two different kinds of Mergers exist: Amalgamation and Absorption. Amalgamation means the joining of two entities to form a new one, for example, X + Y = Z, where Z is a new company. On the other hand, Absorption means one entity gets absorbed into another without losing its identity. For example, In the case of company X’s merger with company Y, X + Y = Y.

Types of Merger

1. Conglomerate Mergers: It brings together completely unrelated companies. For example, merger between Amazon and Whole Foods.

2. Horizontal Mergers: It occurs when two companies in the same industry and direct competition merge. For example, mergers between Disney+ and Hotstar.

3. Market Extension Mergers: This kind of merger takes place between businesses that sell the same product in different markets. For example, merger between Mittal Steel and Arcelor Steel.

4. Product Extension Mergers: When two businesses that deal with the same product and are related to one another merge in this scenario. For example, Hyundai and MRF Tyre.

5. Vertical Mergers: This refers to a merger between companies that are along the same supply chain. For example, a retail company in the auto part industry merges with a company that supplies raw materials for auto parts.

What is an Aquisition?

An Acquisition means one organization acquiring the business of another. In order to gain absolute control over it, the acquirer must purchase at least 51% of the target company’s stock. This is known as Corporate Action. Typically, it entails acquiring ownership of that business, acquiring both material and immaterial assets, acquiring rights, and taking on additional responsibilities. Acquisitions usually occur between two companies that are not equal in stature, where a financially stronger entity generally acquires a smaller, relatively weaker one. The main motive behind Acquisition is to gain a better competitive advantage by combining resources with another organization.

Types of Acquisition

1. Horizontal Acquisition: This occurs when a company buys another company that offers similar products or services and hence is termed a Horizontal Acquisition. For example, Facebook purchased Instagram for $1 billion in 2012.

2. Vertical Acquisition: This kind of acquisition occurs when a company buys another company that produces a product in its existing supply chain. For example, the Swedish furniture company Ikea continually buys acres of forest.

3. Congeneric Acquisition: It occurs when one company buys another company that offers different products or services but targets the same customer base. For example, an ice cream manufacturer buying a wafer manufacturer.

4. Conglomerate Acquisition: When one company buys another company from a completely separate industry. For example, Microsoft acquired the professional networking site LinkedIn for $26.2 billion in 2016.

Difference between Merger and Acquisition

Basis	Merger	Acquisition
Meaning	A merger is the coming together of two businesses into one, usually under a new name. It involves the mutual choice of the two businesses to merge and proceed as a single or new company.	Acquisition is the process in which one business buys another. The acquired business may choose to remain a distinct legal entity or merge with the acquiring business.
Ownership	When two businesses merge, they agree to work together as equals, and the stockholders of each business become shareholders of the combined company.	The acquiring business takes ownership and control of the acquired business.
Legal Status	The result of a merger is the formation of a new legal entity. The original businesses go out of business on their own.	Depending on the terms of the acquisition, the acquired company may either be integrated into the acquiring company or keep its legal identity.
Purpose	Synergies are often the main objective of mergers, bringing together resources and strengths to form a more efficient and competitive organization.	Strategic objectives like expanding market share, obtaining particular technologies, or breaking into untapped markets frequently serve as the impetus for acquisitions.

Conclusion

In conclusion, businesses make strategic business decisions, such as mergers and acquisitions, to accomplish a variety of goals, including growth, diversification, and gaining a competitive edge. Hence, both Mergers and Acquisitions are aimed at achieving organizational goals in order to increase their competence and efficiency.