Merger vs. Acquisition: What's the Difference?
Edited by Janet White || By Harlon Moss || Updated on October 13, 2023
Merger refers to two companies combining to form a new entity, while an acquisition is where one company purchases another and assimilates it into its operations.
Key Differences
In the context of the business world, a merger is a strategic move where two usually equal-sized companies agree to come together, coalescing their resources, operations, and identities to form a single new entity. Acquisitions, on the contrary, denote a scenario where one company, typically larger or financially superior, purchases another, which may not necessarily be of a smaller size. The dynamic between the involved organizations in mergers is generally egalitarian, while acquisitions often illustrate a buyer-seller relationship.
Exploring further, mergers are often aimed at expanding market reach, diversifying products or services, or acquiring new capabilities, while maintaining a symbiotic relationship between the merging companies. In the context of an acquisition, the acquiring company seeks to grow or strengthen its position by integrating the acquired company into its existing operations, possibly retaining or dissolving the acquired company’s identity.
Moreover, mergers are generally conducted in a friendly manner, considering mutual benefits and jointly agreed-upon terms between both entities, fostering a cooperative ambiance. Whereas acquisitions might be friendly or hostile, indicating that the acquired company may or may not be willing to be bought, which sometimes results in aggressive takeover strategies from the acquiring company.
Considering the financial aspect, a merger implies a confluence where both entities dissolve to re-establish as a fresh entity, often involving stock swaps and shared control. In contrast, acquisitions typically involve payment, either in cash, stocks, or a combination thereof, from the acquiring company to the target company, and control is consolidated with the acquiring company.
Lastly, the structural outcome of mergers and acquisitions drastically diverges. Post-merger, a brand-new company, possibly with a new name and organizational structure, emerges, melding the cultures and operations of the pre-existing companies. In contrast, post-acquisition, the target company may cease to exist as an independent entity and could be absorbed into the purchasing company, often maintaining the dominant company's name and culture.
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Comparison Chart
Definition
Two companies forming a new entity.
One company buys another.
Nature of Deal
Usually friendly and mutually agreed upon.
Can be friendly or hostile.
Structural Outcome
Forms a new entity often with a new identity.
Acquired company may be absorbed and cease to exist independently.
Control and Ownership
Shared control, assets, and liabilities.
Acquirer takes control and may retain/dissolve acquired company’s identity.
Financial Transaction
Generally involves stock swaps with no cash trading hands.
Involves payment from the acquiring to the target company, either in cash or stocks.
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Merger and Acquisition Definitions
Merger
A merger is the amalgamation of two companies to create a new enterprise.
The merger between the two pharmaceutical giants resulted in the formation of a new global leader in healthcare.
Acquisition
Acquisitions can be amicable or hostile, depending on the willingness of the target company to be bought.
The hostile acquisition took place despite the resistance from the management of the target company.
Merger
Mergers often seek to create synergies that enhance operational efficiencies and expand market reach.
The merger of the telecom companies paved the way for expanded network coverage across continents.
Acquisition
In an acquisition, the acquiring company often absorbs the acquired company into its operations.
Following the acquisition, the employees of the smaller firm were integrated into the larger company's workforce.
Merger
Mergers typically imply a legal consolidation of two companies into a fresh, jointly owned entity.
The merger was finalized after regulatory approvals, giving birth to a new entity with shared control and ownership.
Acquisition
An acquisition is the act of one company purchasing another company’s assets, equity interests, or a business unit.
The tech company’s acquisition of the startup allowed them to integrate innovative technologies into their products.
Merger
In a merger, assets and liabilities of both companies are jointly owned in the new entity.
The merger ensured that the technologies developed by both firms became collective intellectual property.
Acquisition
An acquisition usually involves the purchasing company buying either the stocks or assets of the target company.
The acquisition was completed through a cash deal for the shares of the smaller company.
Merger
Mergers involve combining organizational structures, often leading to rebranding under a new name.
The merger of the airlines resulted in a new brand, promising a superior and unified customer experience.
Acquisition
Acquisitions might lead to the dissolution or continuation of the acquired company’s brand.
The acquisition resulted in the disappearance of the once-popular brand from the market.
Merger
The act or an instance of merging
A merger of technique and creativity.
Acquisition
The act of acquiring.
Merger
An absorption of one corporation by another, with the corporation being absorbed losing its separate identity and governance.
Acquisition
Something acquired or gained
Added two new acquisitions to my library.
FAQs
Do companies retain their identity in a merger?
Usually, merging companies form a new entity and may adopt a new identity.
What is a merger?
A merger is when two companies combine to form a new entity.
What defines an acquisition?
An acquisition occurs when one company buys and takes control of another company.
What is a strategic acquisition?
A strategic acquisition is pursued to obtain specific resources or capabilities to stimulate growth.
How are mergers different from joint ventures?
Mergers create a new entity while joint ventures involve companies cooperating without forming a new entity.
What is divestiture in relation to acquisitions?
Divestiture involves a company selling off a business unit, often as a strategy following acquisitions.
Can governments prevent mergers?
Yes, governments can prevent mergers if they believe it would hinder competition or create a monopoly.
Can an acquisition be hostile?
Yes, acquisitions can be either friendly or hostile.
Are acquisitions always cash transactions?
No, acquisitions can involve cash, stock, or a combination thereof.
How does a merger affect stock prices?
Mergers can affect stock prices, potentially increasing the stock value of both companies due to anticipated synergies.
Who decides on a merger?
Generally, the boards of the merging companies and regulatory authorities decide on a merger.
What is a friendly acquisition?
A friendly acquisition is when the target company willingly agrees to be acquired.
How does a merger affect employees?
Mergers can lead to organizational restructuring, which may affect employment, roles, and responsibilities.
Why do companies pursue acquisitions?
Companies may pursue acquisitions for various reasons, such as expansion, obtaining technology, or enhancing capabilities.
Can an acquisition fail?
Yes, acquisitions can fail due to reasons like cultural differences, financial issues, or operational conflicts.
What are the types of acquisitions?
Acquisitions can be of types like conglomerate, congeneric, horizontal, or vertical, depending on the nature and industry of companies involved.
Are mergers and acquisitions the same?
No, while both involve consolidation of companies, mergers create a new entity, while acquisitions involve one company absorbing another.
Can a smaller company acquire a larger one?
Yes, a smaller company can acquire a larger one if it has the necessary financial resources.
What is a horizontal merger?
A horizontal merger occurs between companies operating in the same industry or sector.
Is shareholder approval required for an acquisition?
Typically, shareholder approval is required, especially if it involves issuing new stocks.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
