Difference Between Merger and Acquisition (with Example and Comparison Chart)

Apr 27, 2022 · 4 min read ·

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Merger and acquisition are the two most commonly applied corporate restructuring strategies, which are often uttered in the same breath, but they are not one and the same. These are the form of external expansion, whereby through corporate combinations, business entities purchases a running business and grows overnight. It helps the business in maximizing the profit and growth by increasing the level of production and marketing operation. While merger means “to combine”, Acquisition means “to acquire.”

Merger alludes to the combination of two or more firms, to form a new company, either by way of amalgamation or absorption. Acquisition or otherwise known as takeover is a business strategy in which one company takes the control of another company. By reading this article, you will be able to understand the difference between merger and acquisition.

Content: Merger Vs Acquisition

Comparison Chart

Definition

Key Differences

Examples for Mergers and Acquisitions

Conclusion

Comparison Chart

Basis for Comparison	Merger	Acquisition
Meaning	The merger means the fusion of two or more than two companies voluntarily to form a new company.	When one entity purchases the business of another entity, it is known as Acquisition.
Formation of a new company	Yes	No
Nature of Decision	The mutual decision of the companies going through mergers.	Friendly or hostile decision of acquiring and acquired companies.
Minimum number of companies involved	3	2
Purpose	To decrease competition and increase operational efficiency.	For Instantaneous growth
Size of Business	Generally, the size of merging companies is more or less same.	The size of the acquiring company will be more than the size of acquired company.
Legal Formalities	More	Less

Definition of Merger

Merger refers to the mutual consolidation of two or more entities to form a new enterprise with a new name. In a merger, multiple companies of similar size agree to integrate their operations into a single entity, in which there is shared ownership, control, and profit. It is a type of amalgamation. For example M Ltd. and N Ltd. jJoined together to form a new company P Ltd.

The reasons for adopting the merger by many companies is that to unite the resources, strength & weakness of the merging companies along with removing trade barriers, lessening competition and to gain synergy. The shareholders of the old companies become shareholders of the new company. The types of Merger are as under:

Horizontal
Vertical
Congeneric
Reverse
Conglomerate

Definition of Acquisition

The purchase of the business of an enterprise by another enterprise is known as Acquisition. This can be done either by the purchase of the assets of the company or by the acquiring ownership over 51% of its paid-up share capital.

In acquisition, the firm which acquires another firm is known as Acquiring company while the company which is being acquired is known as Target company. The acquiring company is more powerful in terms of size, structure, and operations, which overpower or takes over the weaker company i.e. the target company.

Most of the firm uses the acquisition strategy for gaining instant growth, competitiveness in a short notice and expanding their area of operation, market share, profitability, etc. The types of Acquisition are as under:

Hostile
Friendly
Buyout

Key Differences Between Merger and Acquisition

The points presented below explain the substantial differences between merger and acquisition in a detailed manner:

A type of corporate strategy in which two companies amalgamate to form a new company is known as Merger. A corporate strategy, in which one company purchases another company and gain control over it, is known as Acquisition.

In the merger, the two companies dissolve to form a new enterprise whereas, in the acquisition, the two companies do not lose their existence.

Two companies of the same nature and size go for the merger. Unlike acquisition, in which the larger company overpowers the smaller company.

In a merger, the minimum number of companies involved are three, but in the acquisition, the minimum number of companies involved is 2.

The merger is done voluntarily by the companies while the acquisition is done either voluntarily or involuntarily.

In a merger, there are more legal formalities as compared to the acquisition.

Examples of Mergers and Acquisitions in India

Acquisition of Corus Group by Tata Steel in the year 2006.
Acquisition of Myntra by Flipkart in the year 2014.
The merger of Fortis Healthcare India and Fortis Healthcare International.
Acquisition of Ranbaxy Laboratories by Sun Pharmaceuticals.
Acquisition of Negma Laboratories by Wockhardt

Conclusion

Nowadays, only a few numbers of mergers can be seen; however, acquisition is getting popularity due to extreme competition. The merger is a mutual collaboration between the two enterprises in becoming one while the acquisition is the takeover of the weaker enterprise by the stronger one. But both of them gain the advantage of Taxation, Synergy, Financial Benefit, Increase in Competitiveness and much more which can be beneficial, however sometimes adverse effect can also be seen like an increase in employee turnover, clashing in the culture of organizations and others but these are rare to happen.

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