HomeFinanceWhat Is a Merger and What Is an Acquisition?

What Is a Merger and What Is an Acquisition?

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Mergers and acquisitions are two very different things, even if both words are usually used as one. There are some big differences between the two, however, and it is important to understand these differences to have the biggest chance of making a successful deal. Corporate mergers and acquisitions often go wrong, simply because people do not take the time to really look into what they are and what they mean.

Understanding the Differences Between Mergers and Acquisitions

Mergers take place when two, usually similarly sized, companies, agree to join forces and become a single company instead. In so doing, a single, hopefully stronger, entity is created. As a result, competition is reduced and any remaining competition will find it more difficult to keep to the top. Usually, these moves are mutually agreeable, which means each company retains an equal share of stock. While some job losses are inevitable, these will happen with both the companies and are usually arranged through some sort of voluntary redundancy, with very few people actually being forced out. As a result, the new company’s culture tends to be more harmonious as well.

Acquisitions are different. In an acquisition, one company completely takes over the other company. The company that is taken over ceases to exist, while the company that bought it will retain its name and operating policies and procedures. Job losses, again, are inevitable. Almost always, however, they will be on the side of the company that got taken over, with the exception of any standout talent that happened to work there. Redundancies tend to also not be voluntary. As a result, any staff that does remain from the company that is taken over tends to be quite disgruntled, which can significantly affect overall culture.

Acquisitions are often referred to as ‘hostile takeovers’ because of this reason. However, they usually happen when the company that is being taken over was at risk of failing anyway. As such, most people who did work for it will have expected some sort of problem with their jobs as well.

Why Do Mergers and Acquisitions Happen?

While it is clear, from the above, where the differences between mergers and acquisitions lie, there are also some very strong similarities. Most of the similarities are found in the reasons for them taking place at all. These include:

  1. Two companies that essentially make the same product would have a greater competitive edge if they join forces together.
  2. Two companies that make related products, such as a shoe company and a shoe lace company, could significantly reduce their overall operating costs by joining together, while at the same time becoming more competitive.
  3. Two completely unrelated companies can gain a greater influence over a wider market by joining together.

All mergers and acquisitions are risky, which is why they often fail as well. However, if managed properly, with the help of proper financial and legal advisors, they can also be incredibly successful.

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