Differences Between Mergers & Acquisitions

Mergers and acquisitions are corporate strategies designed to increase a company's capabilities. They're often referred to collectively as M&A. However, there are some critical differences between mergers and acquisitions that those working corporate roles must understand.

Mergers empower companies by enabling them to share technology, resources, and information. A merger involves at least two companies making the strategic decision to combine their resources. Typically, this leads to the formation of one company under a new name, which then issues shares as a new entity. The goal is to create a singular entity with fewer weaknesses and a stronger position in the market. Mergers are usually friendly, with all companies agreeing to the terms because they're mutually beneficial.

With an acquisition, one company purchases another. The purchase typically involves buying at least 50 percent of the shares of the business it is acquiring. An acquisition may not always occur on friendly terms, especially if the owners of the purchased company do not want the acquisition to happen. In these scenarios, an acquisition can become a hostile takeover. However, many acquisitions get conducted civilly, with both sides agreeing to the purchase.

Beyond the differences related to the transaction, several other variances exist. In a merger, all parties work together to create an effective company structure. This work often involves combining the most efficient processes each company has to create a new set of standards and procedures. Acquisitions may involve the same level of collaboration. However, they may often lead to the acquiring company imposing its structure onto the purchased company. The acquiring company may also make changes to the staffing and resource management of the purchased company.

There are also differences between the purposes behind each strategy. Companies often choose to merge because they see the act to decrease competition, thus increasing the merged entity's market share. Mergers can also improve operational efficiency due to the collaborative strategic approach taken. For acquisitions, fast growth is often the main reason behind the acquiring company's decision. The acquiring business gains access to more staff by purchasing a similar company, thereby increasing its market share and potentially eliminating a competitor.

In acquisitions, the acquiring company can dictate the terms of the arrangement. In some cases, the purchased company has very little say, especially if the acquisition occurs due to the purchase of shares. Again, mergers differ here due to a more collaborative approach. The terms defined in a merger typically serve all parties, splitting the benefits between each company to create a more even share of power.

Mergers and acquisitions are good ways for companies to increase their market share. However, collaboration lies at the heart of a merger, resulting in a new entity that is ideally stronger than the individual firms involved. Acquisitions are quicker and enable instant growth for the acquiring company. Still, they come with complications related to restructuring the purchased company that may make the process more challenging. Before deciding on a course of action, company leaders must carefully weigh up the pros and cons of each choice to determine if a merger or acquisition will leave them in a stronger position.