Merger vs Acquisition
In the corporate world, the terms merger, acquisition, and takeover are quite commonly used to describe a scenario in which two companies are joined together to act as one. There may be many reasons for two companies to combine their operations, which could be done in a friendly manner, with the agreement from both parties or in a hostile unfriendly manner. The following article provides a clear explanation of what is meant by merger and acquisition and outlines how they are different and similar to each other.
Merger
A merger occurs when two firms, usually equal in size decide to continue business as a single firm rather than being owned and operate as separate entities. In order for a merger to happen, both companies should surrender their stocks so that a new company can be formed and new stock can be issued. A modern example of mergers is when Daimler-Benz and Chrysler decided to go forward as one company and ceased to exist as separate entities. A new company called DaimlerChrysler was formed in the place of the previously independent firms.
Acquisition
In an acquisition, one company will purchase the other. In an acquisition, the company that acquires the target company will be entitled to target company’s all the assets, properties, equipment, offices, patents, trademarks, etc. The acquirer will either pay in cash to acquire the firm or provide shares in the acquirer’s firm as compensation. In most cases, after the acquisition is complete, the target company will not exist and would have been swallowed up by the acquirer and will operate as an indistinguishable part of the larger acquirer firm. In other instances, the target company may also operate as a separate unit under the larger firm.
What is the difference between Merger and Acquisition?
The reasons for which either an acquisition or merger occurs is quite similar, and usually occurs because combined operations can benefit both firms through economies of scale, better technology and knowledge sharing, larger market share, etc. However, mergers rarely happen and usually what happens is one company will purchase another; but the deal will be claimed to be a merger even though it is, in fact, an acquisition in a technical sense. A major difference between a merger and acquisition is that, generally in a merger the companies that come together will be of similar size; however, in an acquisition, one company will be larger and stronger than the smaller company that is being acquired. Furthermore, in a merger, both companies seize to exist, and the joint larger company will be renamed whereas, in an acquisition, both companies will resume business under the larger company that acquired the smaller firm.
Summary:
Merger vs Acquisition
• The reasons for which either an acquisition or merger occurs is quite similar, and usually occurs because combined operations can benefit both firms.
• A merger occurs when two firms, usually equal in size decide to continue business as a single firm rather than being owned and operate as separate entities.
• In an acquisition, one company will purchase another, and the company that acquires the target will be entitled to the target company’s all assets, properties, equipment, offices, patents, trademarks, etc.
• In a merger, generally, the companies that come together will be of similar size whereas, in an acquisition, one company will be larger and stronger than the smaller company that is being acquired.
• In a merger, both companies seize to exist, and the joint larger company will be renamed whereas, in an acquisition, both companies will resume business under the larger company that acquired the smaller firm.