Mergers and acquisitions (M&A) are business transactions involving the transfer or consolidation of the ownership of companies, business organizations, or their operating units with another company or business organization. The key differences between mergers and acquisitions are as follows:
Mergers:
- Definition: A merger is the legal consolidation of two business entities into one, creating a new legal entity under the banner of one corporate name.
- Types:
- Horizontal merger: Two companies in direct competition and sharing the same product lines and markets.
- Vertical merger: A customer and company or a supplier and company.
- Process: Mergers occur when two companies join forces, typically between businesses of similar size, recognizing advantages in terms of increasing sales, efficiencies, and capabilities.
- Outcome: The merged entity usually takes on a new name, ownership, and management composed of employees from both companies.
Acquisitions:
- Definition: An acquisition occurs when one entity takes ownership of another entitys share capital, equity interests, or assets.
- Types:
- Purchase of one business or company by another company.
- Consolidation of assets and liabilities under one entity.
- Process: Acquisitions occur when one company buys another company and folds it into its operations. The purchase can be friendly or hostile, depending on the circumstances.
- Outcome: The acquired company gets fully absorbed by the acquiring company, and sometimes the acquired company gets liquidated.
In summary, mergers and acquisitions are both aimed at achieving better synergies within the organization to increase competence and efficiency. The main difference lies in the process and outcome, with mergers resulting in the creation of a new legal entity and acquisitions involving one company taking ownership of another.
