Although the terms mergers and acquisitions are often interchangeable, they are very different concepts. In this article, we’ll talk about their main differences and how they can be used to describe the acquisition or merger of two companies.
Primary Difference
One of the main differences between the terms mergers and acquisitions is that the former involves the combined entity, while the latter refers to the purchase of another company.
If two companies agree to merge, it is called a “merger.” On the other hand, an acquisition is a “buyout.” This occurs when one company absorbs another without changing its identity.
Mergers
A merger is usually a process where two companies combine to create a new entity entirely different from its previous one. Each party to the deal holds a share of the new company. The management structure of the new entity is then created.
The advantages of a merger are usually more significant than those of an acquisition. Both parties stand to benefit from the deal, and it allows them to maintain their respective operations.
In a merger, the negotiations usually revolve around allotting shares to the new company. The new shares are then distributed to the shareholders of the new entity. Mergers rarely involve cash.
Companies typically carry out mergers to expand their reach and improve their profitability. They also reduce their operational costs and improve their market position. Even if one parent sacrifices some of their power, the other company will benefit from the combined entity’s operational reach.
Acquisitions
An acquisition is typically more hostile than a merger due to the high imbalance of power that the combined entity has. It’s also more common due to the rare circumstance where two companies have equal standing to merge.
An acquisition usually involves one company purchasing the other. The negotiations usually revolve around the purchase price.
Sometimes, an acquisition is carried out to expand a company’s product offerings or reduce operational costs. It can also be done to acquire certain assets that would otherwise be required to develop.
Conclusion
The process of a merger or acquisition can be lengthy and complex. It usually involves extensive due diligence and negotiations, and it can also involve high costs. One of the most common concerns is the legal costs.
Before a deal can be completed, the organization’s interests must be adequately represented. An experienced attorney can help you navigate the various legal issues that can arise during the process.