Understanding the Difference between a Merger and an Acquisition

mergers and acquisition
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Mergers and acquisitions are two different practices, although they are used synonymously today. There are different implications to a merger and acquisition deal, and the main difference between the two is the financial aspects of mergers and acquisitions.

Mergers

A merger happens between two organizations of similar size and structure, with pretty much the same financial standing in the industry. They may have decided to merge and form an alliance or monopoly in the same industry or two different ones. Mergers allow both parties to collectively cut down on costs and enjoy tax benefits while maximizing profits as well. Mergers in essence happen between companies with similar values in the market place, and both organizations have to sell their shares on the stock market, while new stocks are provided in their place for the new corporation.

However, there are very few mergers between companies who have a similar standing in the same industry, since most of them are rivals who are competing against each other. The compatibility of the two organizations may be different from each other or the management may disagree or in some cases the stockholders may reject the notion of joining hands with their direct competitors.

Many times a merger takes place under different names and circumstances, where two CEOs may come together to join hands and bring forth a proposal to the organization. This is known as a securing contract, where one company takes charge of the other, and the actual difference is in the method of purchase of the company and the reception it gets in front of the workers, managers and owners.

Acquisitions

An acquisition is quite different from a merger, as it usually occurs when a larger corporation takes over a smaller one, in order to expand their business and extend their market growth. Most companies who acquire different organizations do not have to sell their stocks or change their names, since the smaller company becomes a part of the larger organization and is known as the same.

This is why an acquisition is seen as the best way for most organizations to grow their business. There are several forms of mergers and acquisitions employed by companies today, one kind is the reverse merger, where a private organization may acquire a newly formed organization, preferably one which has no business and very little assets.

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