Merger and acquisition are terms related to corporate finance management and strategic management that deals in the selling, buying, combing or dividing different companies or similar companies. However, the process of and the end result of both are entirely different from each other. The main difference between merger and acquisition is that in merger means the legal consolidation of two companies into one entity. One the other hand acquisition means the legal takeover by the one company to another company and completely becomes the new owner of the acquiree company.
What is Merger?
Merger means the consolidation of two different entities into a new entity or joint organization. According to law, at least two companies are required for consolidation or merging purpose to form a new entity with a new ownership and management structure (with members of both entities). After the merger, the separately owned entities become jointly owned and obtain the title of a new single identity or joint organization. When two entities merges, stocks of both are surrendered and new stocks in the name of new entity are issued. It usually take place between two entities of less or more same size that is called ‘Merger of Equals’.
What is Acquisition?
Acquisition refers to the situation when one entity takes over another completely and becomes the new owner of the acquired entity. Such take over may be hundred percent or nearly hundred percent of the assets or ownership equity of the acquired entity. It can be divided into two types: private acquisition, and public acquisition depending on whether acquiree or target company is or is not listed on a public stock exchange. It can also be friendly and hostile. It depends on how the proposed acquisition is communicated and perceived by the acquiree company’s BoD, employees and shareholders. Acquisition needs careful planning and strategy. Various studies have shown that 50% of acquisition were unsuccessful.
Key Differences between Merger and Acquisition
- Merger is take place between two entities of less or more size while in acquisition, a larger firm purchase the smaller one.
- Title of entities changes after merger while in acquisition, target or acquires company works under the title acquirer company.
- Ownership and management structure remains almost same consists upon the members of both entities. There is no involvement of target company management after acquisition. Purchaser company owns the whole management.
- Merger means the legal consolidation of two companies into one entity. One the other hand acquisition means the legal takeover by the one company to another company and completely becomes the new owner of the acquiree company
- Merger is a mutual decision while acquisition can be friendly or hostile.
- Merger has higher legal cost as compare to acquisition.
- Dilution of ownership occurs in merger while in acquisition, the acquired doesn’t experience the dilution of ownership.
- In merger, shareholder can increase their worth. Buyer can’t raise their enough capital.
- Merger is time consuming as merging companies have to deal with many legal issues. Acquisition is a faster and easier transaction.