20+ Differences Between Mergers And Acquisitions (Explained)

In the world of business, companies often struggle to reap more significant profits. In this regard, companies have coined several new methods to keep growing in the diverse business environment.

While some businesses come together to join hands by mutually agreeing to work together for the benefit of each other, several companies also effectively remove competition by eliminating the names of their competitors in suggested methods.

Thus, if you are a business enthusiast or simply a curious mind wanting to expand your knowledge regarding this subject, you might find this article interesting. We will discuss the difference between mergers and acquisitions.

Comparison Between Mergers And Acquisitions

Parameters	Mergers	Acquisitions
Purpose	Businesses frequently combine with other interested parties to reduce competition and boost operational effectiveness by banding together and working toward a shared objective.	Businesses frequently decide to arrange an acquisition with other interested parties in order to develop quickly by working together and taking over the business possibilities of the other parties.
Procedure	When two or more businesses come together to create a new legal organization with more employment opportunities, this is called a merger.	When a company decides to take over the operational business operations of other interested companies, it is considered to have formed an acquisition.
Nature of Decision	Businesses that decide to move forward with a merger typically reach a consensus on this matter after contacting all relevant departments and individuals.	Yet, businesses that choose to proceed with a purchase might not have done so based on mutual consideration. This is due to the aspect of a hostile takeover, in which a dominating corporation seizes control of the other company’s business activities without receiving permission.
Name of Company	When two businesses decide to combine on amicable terms, the combined corporation must operate under a new name since it creates a whole new corporate identity.	Unless the acquired firm receives legitimate authorization to use its previous name from the dominant corporation, it must operate under the parent company’s name.
Formation of Company	It is considered to be the formation of a new company and the operation of a collaborative and new business entity when two or more firms decide to merge by combining forces and working toward a shared objective that has been mutually agreed upon.	When two or more businesses combine to establish an acquisition, the acquired business merges with the original business and does not eventually become a new business entity. Nonetheless, if approval is obtained from the parent firm, the acquired company may change back to its previous name.
Minimum number of companies involved	It needs at least three firms to establish a legitimate merger, which is the bare minimum number that can be involved.	It needs at least two firms to establish a lawful acquisition, which is the very minimum number that can be engaged.
Size of Business	Businesses that decide to combine by reaching an understanding and cooperating to work toward a similar objective are often about the same size.	On the other hand, the acquiring firm is often a bigger corporation than the acquired company, which is how it was first able to take over its business activities.
Power	When two or more businesses decide to merge by reaching an understanding and cooperating to achieve a similar objective, there is typically a dilution of power among all the businesses involved.	There is typically no power dilution when two or more firms merge, and a parent company acquires an acquired company. Instead, the parent company assumes total authority since it is financially strong than the acquired company.
Shares	When two or more businesses merge by reaching an accord and cooperating to achieve a shared objective, they often issue new shares since they create a new corporate entity.	As it does not create a new corporate entity but rather functions under the dominant one, when two or more firms merge, and a parent company acquires an acquired company, no new shares are offered.

Contrast Between Mergers And Acquisitions

What exactly is a merger?

Companies are said to have formed a merger when they join their hands and work together towards a common goal that is mutually decided upon to ultimately form an entirely new business entity with increased job prospects that may reap them larger profits in the longer run.

Companies often merge with other interested entities to decrease competition and increase operational efficiency by joining their hands and working towards a common goal.

The basis of a merger is completely voluntary, wherein all the companies that are involved decide their terms on a mutual understanding.

Mergers:

Companies who decide to form a merger usually come to such terms by mutually selecting their operational terms.

Companies that decide to form a merger are usually of the same size.

Companies that decide to form a merger ultimately create an entirely brand-new business entity.

Companies that decide to form a merger usually do so to decrease competition and increase operational efficiency.

What exactly is an acquisition?

A company is said to have formed an acquisition when a bigger and more financially stable company takes over other interested entities’ operational business activities, which may or may not be based on a mutual understanding. An acquisition may also be defined as hostile when proper consent is not acquired.

A company with more financial stability often chooses to form an acquisition with other interested entities to achieve rapid growth by joining hands and taking over the other entities’ business prospects.

In this regard, it is important to understand that such a takeover may be with or without a mutual understanding.

Acquisition:

An acquiring company has the power to make an acquisition without the consent of the acquired company.

An acquiring company may or may not acquire a less financially stable company on mutual grounds. It is referred to as a hostile takeover if not mutually agreed upon.

An acquiring company is usually more prominent and financially stable than the acquired company.

An acquiring company that forms an acquisition makes the acquired company a part of itself.

Companies that decide to form an acquisition usually do so to achieve a rapid amount of growth in a short interval of time.

Major Differences Between Mergers And Acquisitions

Purpose:

Mergers: Companies often choose to form a merger with other interested entities to decrease competition and increase operational efficiency by joining their hands and working towards a common goal, ultimately leading to a beneficial business operation that may reap them larger profits in the longer run.

Acquisition: A company with more financial stability often chooses to form an acquisition with other interested entities to achieve rapid growth by joining hands and taking over the other entities’ business prospects. In this regard, it is important to understand that such a takeover may be with or without a mutual understanding.

Procedure:

Mergers: Companies are said to have formed a merger when they join their hands and work together towards a common goal that is mutually decided upon to ultimately form an entirely new business entity with increased job prospects that may reap them larger profits in the longer run.

Acquisitions: Companies are said to have formed an acquisition when a bigger and more financially stable company happens to take over other interested entities’ operational business activities, which may or may not be based on a mutual understanding. An acquisition may also be defined as hostile when proper consent is not acquired.

Nature of Decision:

Mergers: Companies who decide to go forward with a merger usually come upon agreeing to such a decision to merge with another company mutually after consulting each division and individual who is involved and affected in and by such process of merging together. However, if consent is not given, it may be a hostile takeover, an element suited for acquisitions.

Acquisitions: The particular companies that decide to go forward with the process of an acquisition, on the other hand, may not have come to such a decision based on mutual grounds of understanding. This is because of the vivid possibility of a hostile takeover by another company, wherein a dominant company takes over the business operations of the other company without acquiring their proper consent.

Name of Company:

Mergers: In the willful and voluntary event that a company decides to merge with another entity based on mutual grounds, the name of the collective company is subject to a compulsory mandate to operate under a new name. This needs to be ensured because the collective entity then forms an entirely new business identity.

Acquisitions: The company that another dominant company has acquired is subject to a compulsory mandate to operate under the parent company’s name unless the acquired company can obtain the rightful permission to operate under its former name from the dominant company.

Formation of Company:

Mergers: When two or more companies collectively decide to form a merger by joining their hands together and working towards a common goal that has been mutually agreed upon by all the parties who are involved, it is said that they have formed a new company altogether, and thus operate under a collaborative and new business entity.

Acquisitions: When two or more companies go through an acquisition process, the acquired company becomes a part of the parent company but does not ultimately form a new one if joined.

However, if permission is obtained from the parent company in this regard, the acquired company may return its former name.

Minimum Number of Companies Involved:

Mergers: The rule of thumb regarding the proper formation of companies is that at least three companies need to be involved in forming a valid merger, at the minimum standpoint, to be considered and recognized as successful.

Acquisitions: The rule of thumb regarding the proper formation of companies is that at least two companies need to be involved in forming a valid acquisition, at the minimum standpoint, to be considered and recognized as a successful acquisition.

Size of Business:

Mergers: The companies that decide to form a merger by coming to a mutual understanding and joining hands to work towards a common goal are usually of the same size, more or less.

Acquisitions: On the other hand, the process in relation to the idea of acquiring a company is almost always a more prominent business than that of the acquired company, which is why the acquiring company can take over the business operations of the acquired company in the first place.

Power:

Mergers: When two or more companies decide to form a merger by coming to a mutual understanding and joining hands to work towards a common goal, a dilution of power usually occurs between all the companies involved in such a merger.

This is ensured so that the new company can reap larger benefits for itself in the long run.

Acquisitions: When two or more companies decide to form an acquisition wherein a parent company takes over an acquired company, there is usually no dilution of power. In fact, the parent company assumes a sense of absolute power, wherein it is considered to be in a state where it is more financially powerful than the acquired company.

Mergers: When two or more companies voluntarily and collectively decide to form a merger by coming to a mutual understanding and joining hands to work towards a common goal, they usually go through the process of issuing new shares for their newly formed merger since they form an entirely new business entity.

Acquisitions: When two or more companies decide to go through the process of an acquisition wherein a parent company plays the role of taking over an acquired company, it does not particularly offer any new shares since it does not form a new business entity but rather operates under the dominant company’s name.

Frequently Asked Questions (FAQs)

Q1. What is the key difference between the constructs of mergers and acquisitions?

The key difference between the constructs of mergers and acquisitions lies in their essence.

While companies that decide to form mergers usually come to such a decision mutually, companies that form acquisitions may or may not come to such terms on a mutual level of understanding. Sometimes, acquisitions may also be hostile takeovers.

Q2. Why is an acquisition of a company known to be more authoritative than a merger?

An acquisition of a company is considered to be more authoritative than a merger due to its terms of joining together.

When an acquiring company takes over a financially less stable company, it operates under the dominant company’s name and according to the orders given by the dominant company.

Q3. Why do two or more companies that merge together form a new business entity?

When two or more companies come to a mutual understanding and decide to join hands and merge together to work towards a common goal, they form a new business entity because they make their AoA and MoA aside from all other documentation, including the name of the new company, from scratch after deciding mutually on the terms.