Amalgamation vs Acquisition
Times are changing and so are corporate strategies. Companies are becoming larger than ever in an endeavor to control larger markets and in search of new customer bases. There are many ways in which a company tries to expand. It can either grow horizontally or can expand vertically. Amalgamation and acquisition are two strategies which allow companies to become larger and more resourceful. There are people who do not understand the implications of these two strategies that are very commonplace in today’s market situation. This article attempts to take a closer look at amalgamations and acquisitions to highlight their differences.
Both mergers and acquisitions involve two or more companies where businesses become large with an eye on increasing profits through these exercises. Amalgamation refers to consolidation or merger where two or more business entities agree to join hands to form a new business entity that is larger, has more resources at its disposal, and has (possibly) a larger customer base along with new markets. In such a case, where blending of two entities into a single, bigger entity takes place, shareholders of erstwhile companies are given shares of the new company. Amalgamation may take place by merging of a smaller entity into a bigger entity or two or more business entities may merge together to form a new business entity. In case of a amalgamation of two companies, stocks of both companies are dissolved and new stocks of the new business entity are issued to the shareholders. A new board of directors is constituted to look after the affairs of the new business entity.
On the other hand, acquisition refers to an instance where one company takes over controlling assets in another company. Here the buying company becomes the owner and the company that has been taken over ceases to exist. The stocks of the buying company continue to be traded whereas shareholders of the company taken over are issued stocks of the buying company. Acquisition is a combination of two companies of unequal size whereas amalgamation takes place most commonly between companies of equal size and is an example of horizontal expansion.
Amalgamation is sought when two competing companies join hands to avoid competition and also to have a larger customer base. Amalgamation is mostly friendly whereas acquisitions are both friendly as well as hostile.
Amalgamation vs Acquisition
• When a company takes over control of another company establishing itself as the owner, the transaction or process is termed as acquisition
• When two or more companies decide to join hands to consolidate and form a new company in an effort to have a larger customer base, larger market and possibly more profits, the process is termed as amalgamation.
• Amalgamation is often between equals whereas acquisition is between companies of unequal sizes
• Amalgamation is horizontal expansion whereas acquisition is a vertical expansion