Merger vs. Acquisition: What's the Difference?

Edited by Sawaira Riaz || By Sumera Saeed || 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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

ADVERTISEMENT

Comparison Chart

Definition

Two companies forming a new entity.

One company buys another.

Oct 13, 2023

Nature of Deal

Usually friendly and mutually agreed upon.

Can be friendly or hostile.

Oct 13, 2023

Structural Outcome

Forms a new entity often with a new identity.

Acquired company may be absorbed and cease to exist independently.

Oct 13, 2023

Control and Ownership

Shared control, assets, and liabilities.

Acquirer takes control and may retain/dissolve acquired company’s identity.

Oct 13, 2023

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.

Oct 13, 2023

ADVERTISEMENT

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

ADVERTISEMENT

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

Merger

The act or an instance of merging

A merger of technique and creativity.

Oct 19, 2015

Acquisition

The act of acquiring.

Oct 19, 2015

Merger

An absorption of one corporation by another, with the corporation being absorbed losing its separate identity and governance.

Oct 19, 2015

Acquisition

Something acquired or gained

Added two new acquisitions to my library.

Oct 19, 2015

FAQs

Do companies retain their identity in a merger?

Usually, merging companies form a new entity and may adopt a new identity.

Oct 13, 2023

What is a merger?

A merger is when two companies combine to form a new entity.

Oct 13, 2023

What defines an acquisition?

An acquisition occurs when one company buys and takes control of another company.

Oct 13, 2023

What is a strategic acquisition?

A strategic acquisition is pursued to obtain specific resources or capabilities to stimulate growth.

Oct 13, 2023

How are mergers different from joint ventures?

Mergers create a new entity while joint ventures involve companies cooperating without forming a new entity.

Oct 13, 2023

What is divestiture in relation to acquisitions?

Divestiture involves a company selling off a business unit, often as a strategy following acquisitions.

Oct 13, 2023

Can governments prevent mergers?

Yes, governments can prevent mergers if they believe it would hinder competition or create a monopoly.

Oct 13, 2023

Can an acquisition be hostile?

Yes, acquisitions can be either friendly or hostile.

Oct 13, 2023

Are acquisitions always cash transactions?

No, acquisitions can involve cash, stock, or a combination thereof.

Oct 13, 2023

How does a merger affect stock prices?

Mergers can affect stock prices, potentially increasing the stock value of both companies due to anticipated synergies.

Oct 13, 2023

Who decides on a merger?

Generally, the boards of the merging companies and regulatory authorities decide on a merger.

Oct 13, 2023

What is a friendly acquisition?

A friendly acquisition is when the target company willingly agrees to be acquired.

Oct 13, 2023

How does a merger affect employees?

Mergers can lead to organizational restructuring, which may affect employment, roles, and responsibilities.

Oct 13, 2023

Why do companies pursue acquisitions?

Companies may pursue acquisitions for various reasons, such as expansion, obtaining technology, or enhancing capabilities.

Oct 13, 2023

Can an acquisition fail?

Yes, acquisitions can fail due to reasons like cultural differences, financial issues, or operational conflicts.

Oct 13, 2023

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.

Oct 13, 2023

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.

Oct 13, 2023

Can a smaller company acquire a larger one?

Yes, a smaller company can acquire a larger one if it has the necessary financial resources.

Oct 13, 2023

What is a horizontal merger?

A horizontal merger occurs between companies operating in the same industry or sector.

Oct 13, 2023

Is shareholder approval required for an acquisition?

Typically, shareholder approval is required, especially if it involves issuing new stocks.

Oct 13, 2023

Java vs. JavaScript

About Author

Written by

Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.

Edited by

Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.