MERGERS
Merger refers
to consolidation of two or more companies to form an all-new entity with a new
name. Merger assists the companies in uniting their strengths, resources and
weaknesses. Merger leads to a reduction in trade barriers and competition.
The types of Mergers are
as under:
§ Horizontal
§ Vertical
§ Congeneric
§ Reverse
§ Conglomerate
ACQUISITIONS
An acquisition is
the purchase of an entity by another entity. This can be done either by
acquiring ownership over 51% of its share capital or by taking over the assets
of the company. The acquiring company is more influential in terms of
structure, operations and size as compared to the target company.
The types of Acquisition are as
under:
§ Hostile
§ Friendly
§ Buyout
To gain a deeper insight on
acquisitions visit our article Acquisition.
After understanding both the
concepts, let’s have a look at the difference between the two.
MERGERS VS ACQUISITIONS
The following are the
differences between mergers and
acquisitions:
DEFINITION
The fusion of two or more entities
taking place voluntarily to form a new entity is termed as a merger. While one
company purchasing the business of another company is known as an acquisition.
PRESENCE
The companies involved in the
merger dissolve to form a new entity. While in an acquisition, both the
companies do not lose their existence.
TITLE
The new entity formed owing to
the merger, holds a new title. In an acquisition, the acquired company
functions under the title of the acquiring company.
TERMS
Merger is always conducted
under a mutual agreement by all the involved companies. An acquisition may be
implemented voluntarily or involuntarily by the entities.
SIZE OF OPERATIONS
Two or more companies having
the same scale of operations opt for a merger. Whereas, in an acquisition, the
larger company takes over the smaller company.
LEGALITIES
The process of merger involves
a time consuming procedure owing to the high number of legal formalities. As
opposed to an acquisition which can be done faster as the legal formalities are
minimal.
PURPOSE
The purpose of merging entities
is to decrease the prevailing competition in the market and to increase
operational efficiency. However, the sole purpose of an acquisition is an
expansion of the entity.
POWER
In a merger, both the companies
involved are treated as equal. Whereas in an acquisition, the stronger company
holds complete control and power.
STOCKS
A merger leads to issue of new
stocks. While in an acquisition, no new stocks are issued.
MANAGEMENT
The ownership and management structure of the new entity remains almost similar to the previous two entities. In an acquisition, the acquiring company owns the management of the entire organization.
Conclusion
In the fast-paced corporate world, mergers are
occasionally seen. However, extreme competition prevailing in the market leads
to a number of acquisitions. The companies involved in mergers and acquisitions gain
the advantage of financial benefit, synergy, taxation and increase in
competitiveness. However, adverse effects such as clash in the culture of the
entities and increase in employee turnover are also noted.
