Abstract:
Acquisitions and mergers both allude to the joining of at least two business elements that involve the rebuilding of their corporate structure or order. They are pointed toward accomplishing better collaborations and synergies inside the association to expand their capability and proficiency. Notwithstanding, there are key contrasts between acquisitions and mergers as far as inception, methodology, and result.
An acquisition is a circ*mstance wherein a bigger, monetarily more grounded association assumes control over a more modest one. The latter stops existing, and the entirety of its tasks and resources are procured by the bigger business venture. Then again, a merger happens when individual associations choose to join their powers and bring about another business substance.
Meaning of Acquisition:
An acquisition involves one association or a business entity gaining or acquiring another business. The acquirer should buy no less than 51% of the objective or target the organisation’s stock to take control over it. It, for the most part, happens between two organisations that are not equivalent in stature: a monetarily more grounded business entity by and large gains a more modest or smaller one, relatively a more fragile one. It isn’t required for the choice to be a common one or mutual consent; when an organisation assumes control over the activities of one more without the acquiring firm’s option’s assent, it is named as a hostile takeover.
The smaller organisation proceeds with its activities under the name of the bigger one. The acquirer can decide to either hold or lay off the staff of the procured or acquired organisation. Indeed, the obtained organisation stops to exist in its past name and works under the name of the securing organisation; only under a few circ*mstances the gained or acquired organisation will hold its original name, and no new shares are offered.
The thought processes or motives in securing are like those for mergers. The fundamental point is to acquire a superior market competitive advantage by joining assets with another association.
Meaning of Mergers:
Whenever at least two individual organisations combine to shape another business, it is known as a merger. The merged business entity, for the most part, takes on another name, possession or ownership, and the management and its systems that are made out of workers or employees from the two organisations. The choice to merge is shared all the time or of mutual consent since the consolidating organisations join their powers to look for specific advantages, even at the expense or cost of weakening or diluting their singular business powers. There is typically no trade of money.
The rationale in consolidations or mergers might be to gain entry into new markets and niches, diminish operating costs, increase revenues, expand profit margins, and widen their market share. The business entities to the agreement or contract are by and large comparative as far as the scale of operation and size, and they treat each other as equivalents. A merged organisation offers new shares, and the shares are disseminated proportionately among existing investors of both parent organisations.
Difference between Acquisitions and Mergers:
ACQUISITIONS | MERGERS |
| Meaning |
An acquisition is a cycle wherein one organisation assumes or takes over the responsibility for another organisation. | A merger is a cycle wherein more than one organisation’s approach functions as one. |
| Issuance of Shares |
No new shares are issued in case of acquisitions. | New shares are issued in case of mergers. |
| Mutual Consent and Decisions |
The choice of acquisitions is probably not shared, or of mutual consent in nature; in the event that the acquiring organisation assumes control over one more venture without the acquired company’s assent, it is named an unfriendly takeover or hostile takeover. | A merged business entity is settled upon by common assent and mutual consent of the involved organisations. Rather it is a planned and friendly one. |
| Company’s Name |
The obtained or acquired organisation, for the most part, works under the name of the parent organisation. Sometimes, nonetheless, the previous company can hold its original name, assuming the parent organisation permits it. | The merged business entity works under another name or a new name. |
| Stature, by Comparison |
The acquiring organisation is independently stronger in terms of financial capability than the acquired business. | The merged companies are of similar stature, operations, size, and scale of business. |
| Power or Authority over the Other |
The acquired company has no say in terms of power or authority by the acquiring company. | There is harmony when it comes to merged companies. |
| Examples |
Tata Motors acquisition of Jaguar Land Rover | Merging of Glaxo Wellcome and SmithKline Beecham to GlaxoSmithKline |
Also see:
Private Public and Global Enterprises
What Is a Partnership Agreement
Challenges of Entrepreneurship
Class 11 Business Studies Chapter 2 Forms of Business Organisation
Class 11 Business Studies Chapter 8 Sources of Business Finance
FAQs
Both terms often refer to the joining of two companies, but there are key differences involved in when to use them. A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another.
What is merger and acquisition with an example? ›
Mergers and acquisitions (M&A) is a generally used term to describe the process of combining companies through various types of transactions. The most popular one is an acquisition, where one company buys another and transfers ownership. You can do two kinds of acquisitions; a stock sale and an asset sale.
What is the difference between merger and acquisition on a balance sheet? ›
Merger accounting maintains the carrying value of assets/liabilities and combines financial histories, with no goodwill recorded. Acquisition accounting revalues assets/liabilities resulting in goodwill, and only continues the acquirer's financial history.
What is the difference between a merger and a stock acquisition? ›
Asset Acquisition: the buyer buys the assets of the business. Stock Purchase: the buyer buys the stock of the business. Merger: the buyer merges or �combines� with the business.
What is the difference between a merger and acquisition and a joint venture? ›
Joint ventures are created on a short-term basis and mostly for short projects. On the contrary, mergers and acquisitions are long-term strategies. Whereas mergers and acquisitions have no time limit, a joint venture partnership usually has a defined time horizon.
What is the largest acquisition of a company in history? ›
1. Vodafone and Mannesmann (1999) - $202.8B. As of November 2022, the largest acquisitions ever made was the takeover of Mannesmann by Vodafone occurred in 2000, and was worth ~$203 billion. Vodafone, a mobile operator based in the United Kingdom, acquired Mannesmann, a German-owned industrial conglomerate company.
What is the biggest acquisition in history? ›
As of February 2024, the largest ever acquisition was the 1999 takeover of Mannesmann by Vodafone Airtouch plc at $183 billion ($334.7 billion adjusted for inflation). AT&T appears in these lists the most times with five entries, for a combined transaction value of $311.4 billion.
What happens after a merger or acquisition? ›
The stocks of both companies in a merger are surrendered, and new equity shares are issued for the combined entity. An acquisition is when one company takes over another company, and the acquiring company becomes the owner of the target company.
Do mergers and acquisitions fall through? ›
Companies spend more than $2 trillion on acquisitions every year, yet the M&A failure rate is between 70% and 90%.
What happens to equity in an acquisition? ›
The acquirer can pay cash outright for all the equity shares of the target company and pay each shareholder a specified amount for each share. Alternatively, the acquirer can provide its own shares to the target company's shareholders according to a specified conversion ratio.
A merger is usually done to increase the company's size, revenues, market share, etc. On the other hand, an acquisition is a legal term that describes the buying out of a company by another. Acquisitions are usually made to gain control over a particular market. Both of these processes are very common nowadays.
Can an acquisition be a merger? ›
Unlike mergers, acquisitions do not result in the formation of a new company. Instead, the purchased company gets fully absorbed by the acquiring company. Sometimes this means the acquired company gets liquidated. Acquiring a business is similar to buying an existing business or franchise.
What are the three types of mergers? ›
The three main types of mergers are:
- Horizontal.
- Vertical.
- Concentric.
Unlike a merger, not all of the assets and liabilities of the acquired organization are necessarily transferred through the combination. Rather, the asset transfer agreement will specify the assets (and potentially liabilities) subject to transfer.
What is the difference between merger acquisition and buyout? ›
Mergers involve two or more equals, while takeovers involve one larger company that takes over a smaller company. Mergers are always agreed upon using mutual consent, while acquisitions may or may not be friendly. Merged companies choose a new name, while acquired companies often use the parent company's name.
What do m and a stand for? ›
Mergers and acquisitions (M&A) are transactions in which the ownership of companies or their operating units — including all associated assets and liabilities — is transferred to another entity.
What is an example of a merger in the real world? ›
Real-World Conglomerate Merger Example 1: Disney's Acquisition of Pixar. One of the most well-known conglomerate mergers is Disney's acquisition of Pixar. In 2006, Disney, a media and entertainment conglomerate, acquired Pixar, a renowned animation studio.
What is a merger in business example? ›
Horizontal. Horizontal mergers occur when two companies that already offer the same products or services combine. These mergers help companies reduce competition and dominate the market. For example, gas giant Exxon combined with gas giant Mobil back in 1998 to form ExxonMobil.
What is an example of a merger and acquisition failure? ›
The consolidation of AOL Time Warner is perhaps the most prominent merger failure ever. Warner Communications merged with Time, Inc. in 1989.
What are the most common types of mergers and acquisitions? ›
The four most basic types of merger are horizontal, vertical, congeneric, and conglomerate mergers. Beyond these core types, there are also market or product extension mergers and numerous types of acquisitions that are also in some sense mergers. Keep reading to find out more about each of these.
