Merger and acquisition are the two most commonly applied corporate restructuring strategies, which are often uttered in the same breath, but they are not one and the same. These are the form of external expansion, whereby through corporate combinations, business entities purchases a running business and grows overnight. It helps the business in maximizing the profit and growth by increasing the level of production and marketing operation. While merger means “to combine”, Acquisition means “to acquire.”
Merger alludes to the combination of two or more firms, to form a new company, either by way of amalgamation or absorption. Acquisition or otherwise known as takeover is a business strategy in which one company takes the control of another company. By reading this article, you will be able to understand the difference between merger and acquisition.
Content: Merger Vs Acquisition
Comparison Chart
| Basis for Comparison | Merger | Acquisition |
|---|---|---|
| Meaning | The merger means the fusion of two or more than two companies voluntarily to form a new company. | When one entity purchases the business of another entity, it is known as Acquisition. |
| Formation of a new company | Yes | No |
| Nature of Decision | The mutual decision of the companies going through mergers. | Friendly or hostile decision of acquiring and acquired companies. |
| Minimum number of companies involved | 3 | 2 |
| Purpose | To decrease competition and increase operational efficiency. | For Instantaneous growth |
| Size of Business | Generally, the size of merging companies is more or less same. | The size of the acquiring company will be more than the size of acquired company. |
| Legal Formalities | More | Less |
Definition of Merger
Merger refers to the mutual consolidation of two or more entities to form a new enterprise with a new name. In a merger, multiple companies of similar size agree to integrate their operations into a single entity, in which there is shared ownership, control, and profit. It is a type of amalgamation. For example M Ltd. and N Ltd. jJoined together to form a new company P Ltd.
The reasons for adopting the merger by many companies is that to unite the resources, strength & weakness of the merging companies along with removing trade barriers, lessening competition and to gain synergy. The shareholders of the old companies become shareholders of the new company. The types of Merger are as under:
- Horizontal
- Vertical
- Congeneric
- Reverse
- Conglomerate
Definition of Acquisition
The purchase of the business of an enterprise by another enterprise is known as Acquisition. This can be done either by the purchase of the assets of the company or by the acquiring ownership over 51% of its paid-up share capital.
In acquisition, the firm which acquires another firm is known as Acquiring company while the company which is being acquired is known as Target company. The acquiring company is more powerful in terms of size, structure, and operations, which overpower or takes over the weaker company i.e. the target company.
Most of the firm uses the acquisition strategy for gaining instant growth, competitiveness in a short notice and expanding their area of operation, market share, profitability, etc. The types of Acquisition are as under:
- Hostile
- Friendly
- Buyout
Key Differences Between Merger and Acquisition
The points presented below explain the substantial differences between merger and acquisition in a detailed manner:
- A type of corporate strategy in which two companies amalgamate to form a new company is known as Merger. A corporate strategy, in which one company purchases another company and gain control over it, is known as Acquisition.
- In the merger, the two companies dissolve to form a new enterprise whereas, in the acquisition, the two companies do not lose their existence.
- Two companies of the same nature and size go for the merger. Unlike acquisition, in which the larger company overpowers the smaller company.
- In a merger, the minimum number of companies involved are three, but in the acquisition, the minimum number of companies involved is 2.
- The merger is done voluntarily by the companies while the acquisition is done either voluntarily or involuntarily.
- In a merger, there are more legal formalities as compared to the acquisition.
Examples of Mergers and Acquisitions in India
- Acquisition of Corus Group by Tata Steel in the year 2006.
- Acquisition of Myntra by Flipkart in the year 2014.
- The merger of Fortis Healthcare India and Fortis Healthcare International.
- Acquisition of Ranbaxy Laboratories by Sun Pharmaceuticals.
- Acquisition of Negma Laboratories by Wockhardt
Conclusion
Nowadays, only a few numbers of mergers can be seen; however, acquisition is getting popularity due to extreme competition. The merger is a mutual collaboration between the two enterprises in becoming one while the acquisition is the takeover of the weaker enterprise by the stronger one. But both of them gain the advantage of Taxation, Synergy, Financial Benefit, Increase in Competitiveness and much more which can be beneficial, however sometimes adverse effect can also be seen like an increase in employee turnover, clashing in the culture of organizations and others but these are rare to happen.
Jeff Curtis says
Thanks for the helpful information. I now understand the difference!
Jack Mulligan says
Thanks for the info!
elisagrace says
Thanks for clearing my confusion.
S.R.Deepika says
Very good article, Very well explained in simple words.
Brian French says
Very good article.
M. Bilal Qureshi says
Excellent article. I’d rate it 9.5/10.
Rashid says
Many thanks for this information
Surbhi S says
Thanks a lot to all the readers for sharing your views and opinions with us. Keep liking and sharing.. 🙂
Daowdu says
Should the minimum number of companies for merger be 2 instead of 3? I’m referring to the comparison chart
Surbhi S says
That’s not a minimum number of companies, that’s a minimum number of companies involved, which means two companies will merge to form a new company, and this will be the third company.
Shubharam says
Very good article explained in simple and elegant way. Thanks.
MD Maruf Hossan says
thank u for this kind of arrangement