Gaint companies often take over small enterprises. There are typically two scenarios that exist, while one company takes over another company. Either a larger company buy the entire (small) company or two companies merge together to form a new company.
Mergers and acquisitions both seem to be words for joining two or more companies that result in a shift in their company structure. They are intended to improve synergies within the enterprise to improve competence and productivity. However, in terms of initiation, method, and effect, there is a significant difference between merger and acquisition.
When two or more companies plan to join forces to form a new company, this is known as a merger. On the other hand, an acquisition occurs when a bigger, financially stronger company buys out a smaller entity. The latter goes out of business, and the larger corporation takes over all of its activities and properties.
When comparing mergers and acquisitions, we might come to the conclusion that a merger is often preferable to an acquisition. However, just as each coin has two sides, each has its own set of strengths and weaknesses.
The word “merger” refers to joining two or more businesses to form a new entity. It contributes to the division of a number of companies, with the result that they are merged into a larger undertaking.
It is a company’s strategy for optimizing growth by expanding its manufacturing and marketing functions, which results in synergy, expanded customer base, decreased competition, and the launch of a new market/product segment, among other items.
It’s a kind of merger in which the merging entities’ assets and liabilities become the newly formed entity’s assets and liabilities. Similarly, the old company’s shareholders earn a percentage of the new company’s ownership.
An acquisition is a business transaction in which one company buys the whole portion of another company’s stocks or properties. Acquisitions are commonly made to gain ownership of and expand on the target company’s assets while also capturing synergies.
The acquiring company purchases the target company’s stock or properties, giving it the authority to make decisions about the acquired assets without seeking approval from the target company’s shareholders.
Difference between Merger and Acquisition (Comparison Table):
The objective of the comparison table is to elucidate the difference between merger and acquisition by comparing different aspects-
|1.||The merger is a process, through which more than one company put forward their association, and exercise as one.||The acquisition is a process where one company takes control, possession and authority over the other company.|
|2.||The merger is an amicable and mutually agreed process.||The acquisition is a volatile and hostile process, where the superior company having more authority tries to overpower the subordinate company, and this is the main difference between merger and acquisition.|
|3.||The company is given a name and new recognition after the process of merging.||The acquiring company takes over the acquired one.|
|4.||Two or more companies, which are considered of equal status, and have equal terms, merge to become one.||The company that acquires the subordinate company is supposed to be more powerful than the latter one.|
|5.||Both the companies being on the same terms and status, one hardly gets to overpower the other by any virtue.||One company being powerful and superior to the other gets to dictate its terms.|
|6.||In the process of merging, new stocks are issued.||In the process of acquisition, no such new stocks are introduced.|
|7.||One example of merging could be SmithKline and Glaxo Wellcome to Glaxo SmithKline.||An example of acquisition may be Tata Motors acquiring Jaguar and Land Rover.|
|8.||The ultimate aim for merging is to decrease the competition and increase operational efficiency.||The ultimate goal of the acquisition is to develop instantaneous growth.|
|9.||The legal work needed in a merger is much more than an acquisition.||The legal work needed in an acquisition is less as compared to a merger.|
Merger vs. Acquisition – Explanation
1. One of the main distinctions is that a merger is a process by which two or more firms agree to combine to create a new entity. At the same time, an acquisition is a process by which a financially strong company buys more than 50% of a less financially strong company’s shares.
2. The merger is a strategic decision reached after extensive consultation and preparation between the merging firms. As a result, the chances of a volatile atmosphere after merging are reduced. The acquisition is a strategic decision as well, but it is rarely a joint one. As a result, there is a great deal of animosity and chaos after an acquisition.
3. Merged companies normally regard each other as equals, and as a result, they work together to establish synergy. In the case of an acquisition, the acquiring corporation imposes its will on the acquired company, depriving the acquired company of its autonomy and ability to make decisions. The acquired and purchasing companies have vastly different levels of influence.
4. Since the merger necessitates a new corporation’s formation, certain legal formalities and procedures must be followed. In comparison to a merger, the transaction has fewer legal formalities and paperwork to complete.
5. In comparison to an acquisition, there are more legal formalities in a merger. The merger is voluntary on the part of the companies, while the acquisition is voluntary or involuntary on the part of the companies. In a merger, the two companies combine to form a single company, while in an acquisition, the two companies remain separate.
Merely a few mergers can be seen nowadays; however, the acquisition is becoming more common due to intense competition. The merger is a joint effort between the two companies to combine into one, while the acquisition is the stronger company taking over, the weaker one. However, both profit from taxation, synergy, financial gain, increased competitiveness, and a variety of other factors.
However, both of them receive the benefits of taxation, synergy, financial benefit, increased competitiveness, and much more, all of which can be advantageous. However, adverse effects such as increased employee turnover, clashes in organizational culture, and others can occur. However, these are uncommon.