Difference Between Merger and Acquisition
Both terms refer to joining of two businesses, but there is key differences between merger and acquisition. The word ‘merger’ means two organizations coming together as one. An acquisition means to takeover something or procure it. In business circles, mergers and acquisitions are often known as M & A. Both terms are used loosely to mean the same thing. But they are different in meaning.
An acquisition is the purchase of an organization by another. It could be a friendly takeover or things could go wary and it could be a hostile one. In an open acquisition, company executives negotiate in an amicable atmosphere. If it is an aggressive acquisition, the bidder would usually try to acquire the company, when the owners are unwilling to sell or agree without a fight. This is usually the scenario with a large establishment trying to swallow up a little one using legal loopholes. A merger occurs between two organizations that have reached a mutual decision to come together as one. And since these organizations have merged as one, new stocks are issued and old ones are yielded.
The merger can be a horizontal merger, conglomerate merger or a vertical one. If the merging companies are both in the same product line, it is known as horizontal merging. If the two companies are in different product lines, it is a vertical one. If the companies do not have comparable product lines but have decided to merge nevertheless, it is a conglomerate merger. Depending on how this merger is financed, it can be considered a purchase merger or consolidation merger. A purchase merger is when a company is purchased by a bidder.
A consolidation merger is when a new establishment is created by the union of two firms. A securing contract can also be regarded as a merger, if the two CEO’s are in agreement about coming together. If the contract is not acceptable by one of the organizations, but it can do little about it, it is seen as an acquisition. In a merger, companies come together as a necessity to expand their business operations and take a large chunk of existing market share. The deal is usually finalized under welcoming circumstances with both companies taking profits from their new venture.
If a company takes over another and lauds its own rules and regulations over it, it is an acquisition. In the process of restructuring the winning company usually comes to the forefront because of the economic downturn or a lull in profit margins from another company. The company that has a stronger financial base calls the shots and runs the combined operations under a new entity altogether.
About The Author
Alam Qureshi is a Certified Business Intermediary (CBI), Certified M&A Professional and Broker of Record at ProClient Brokers Inc., Brokerage. He helps business owners learn how to sell a business so they can get the maximum value for their company. call us 416 364 5550 or CONTACT US to get in touch.
Date modified: 8-19-2019