Difference between Merger and Acquisition

The term “merger” literally means merging of two organizations into one; term “acquisition” means to takeover or something acquiring. Merger and acquisition is also referred to as M&A. The concept behind this combining is a fact that the value of shareholder is above than that of the sum of two companies alone. Both the terms are used alternatively, but they have a slight difference in their meaning.

An acquisition is buying one organization by another. It can be a friendly takeover or hostile takeover. In friendly acquisition, companies executives negotiate whereas in hostile acquisition, if the bidder continue to seek it even if the company (or target) is unwilling to agree. Usually larger company takes over the smaller company. However in some situations a smaller company might overtake the larger one and only keeping its name for the new firm which is the result of acquisition. This type of acquisition is called reverse merger.

A merger is said to be when two organizations agree on the decision of being one; it’s the mutual decision. In a merger, organizations agree to be as one organization and continue as one rather than as two separate organizations. As a result the newly merged firm’s stocks are issued and stocks of old companies (the stocks of two companies before merging) are surrendered. The merger can be horizontal merger, conglomerate (or congeneric) merger or vertical merger; it depends on the merging companies nature. If the two companies which have decided on merging compete in same product line it is said to be horizontal merging. If two companies of different product line agreed on a merger such that there products together enhances the company’s value is said to be vertical merger. At last, the companies that do not have similar product lines at all decided to merge; this type of merger is called conglomeration merger. Depending on how merger has been financed it can be categorized as purchase mergers and consolidation mergers. The former is defined as a merger in which a company (target) is purchased by the bidder; the latter is defined as a merger in which a new firm is established by bringing together both the firms.

The kind of purchase done decides whether the purchase is a merger or acquisition. The purchase could be friendly purchase or hostile purchase; however this alone is not enough. Even if the top management agrees on the fact that this combining of two firms is in favor of both then also the purchase is said to be a merger.

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