Merger vs. Acquisition
The terms acquisition and merger are used like they were synonymous. However, these terms have a slight difference. A comparison of merger vs. acquisition shows the differences and similarities of these terms.
A purchase can be considered as an acquisition or merger depending on its hostility or friendliness as well as its announcement. Simply put, the difference between merger and acquisition depends on the way it is communicated as well as how the directors, shareholders and employees of the target company receive it.
A purchase is called an acquisition when a company takes over the other and establishes itself clearly as its new owner. From a point of view of legal experts, the target company stops existing once the takeover starts being effective. To them, the buyer is said to have swallowed the target business or company and the stock of the buyer continues being traded in the stock market.
On the other hand, a merger occurs when two companies, usually of a similar size come together and agree to move forward as one, new company instead of staying as separately operated and owned companies. This move is called a merger of equals in the world of business. The companies surrender their stocks and they issue a stock for the new company in their places.
However, mergers of equals in the real world are a rare occurrence. Usually, a company purchases another and the part of their deal is that the acquired company proclaims that the deal was a merger of equals. However, the move is a technical acquisition.
Companies do this because being bought usually has negative connotations. Therefore, calling the deal a merger is a technical way that top managers and deal makers use to make a takeover palatable.
It is important to note that a deal can be described as a merger if the CEOs of both companies agree to join the companies for their interest. However, when there is an unfriendly deal or when a target firm is not ready to be bought, this is usually called an acquisition.
Nevertheless, both merger and acquisition are aspects of corporate finance, strategic management and management that deal with combining, buying and selling different firms and similar entities as well. They can help a company to grow in its location, sector or in a new location or field without establishing subsidiaries or other entities.
Both acquisition and merger can be defined as forms of restructuring because they lead to recognition of an entity while providing positive value and growth. A sector or industry consolidation occurs when there are many acquisitions and mergers because resources of small firms are concentrated and used in establishing larger firms. Both acquisition and merger can lead to financial and economic consolidation of the involved entities.
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