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Mergers & Acquisitions — Explaining The Differences

Updated 20.06.24 4 minutes read
Advisory

Mergers and acquisitions (M&A) are both strategic business activities, but they involve distinct processes and have different implications for the companies involved.

What is a Merger?

Mergers take place when two companies combine to form a new business entity, with both parties to the merger agreeing to unite under a single new organization. When the process is welcomed by all stakeholders, it’s a merger even though the same transaction, motivated by hostile intentions and not welcome by all involved, is an acquisition (see below). 

The business entities that existed before the merger cease to exist when the merger takes place. The new, post-merger business entity has a different ownership and management structure, usually consisting at least in part of members of the merged businesses. 

Mergers are often motivated by the opportunity to achieve synergies in the use of resources or expertise. Reduced costs and expanded market reach typically follow as secondary but important benefits. 

Actual mergers are rather rare in the business world but when they do take place, they are usually between two similarly-sized players in a large global market like energy, telecoms, media, etc. 

Learn the most important differences between corporate mergers and acquisitions

What is an Acquisition?

Acquisitions involve the purchase of one company by another. Subsequent to an acquisition, the purchased company may continue to exist as a separate legal entity or may be incorporated into the purchasing company’s legal assets. 

Whatever the new status of the acquired company, its assets and operations belong to the purchasing company. Management and operational decisions are made by the acquiring company.

Acquisitions are not always welcome but cannot be avoided in many circumstances, for example if the target of the acquisition is a publicly-traded company. 

While acquisitions are also often motivated by the desire to access new markets, technologies or product ranges, they can also be a way to eliminate competitors. A typical acquisition scenario involves one company obtaining the technologies of a target company instead of investing years of resources in research and development to catch up.

Acquisitions can be seen as more aggressive than mergers and, as a result, companies may refer to an acquisition as a merger even though it’s clearly a takeover. Given the fact that mergers are rare and acquisitions can come with negative connotations, the two terms have become a single way to reference transactions that would have previously been assigned to one category or the other. 

Joorney’s advisory services can guide you on a much deeper examination of merger and acquisition opportunities. If you’re considering one or the other as a way to grow your business or as an exit strategy, talk to our professional advisors today

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