Difference between Mergers and Acquisition
The term ‘merger’ refers to the absorption by a corporation of one or more others. It
means combining of two or more organizations into one. The combination of the two
companies involves a transfer of ownership, either through astock swap or
acash payment between the two companies. In practice, both companies surrender
their stock andissue new stock as a new company.
The term ‘acquisition’ refers to the purchase of all or a portion of a corporateasset of
the target company. An acquisition is a situation whereby one company purchases most
or all of another company's shares in order to take control. Thus, the two terms appears
to be similar in the sense that they combine two corporate companies to form one unit,
however, these two terms cannot be used interchangeably. The two differs in their
A merger refers to the coming together of two companies that can be regarded as
equals. Two companies decide to join forces in order to increase the strength of their
assets, have a higher market and consumer base, and ultimately make higher profits.
The two businesses or corporations become jointly owned and are registered as a new
legal entity – which has an identity different from the two companies that came
together for the merger. Whereas an acquisition occurs when one company or
corporation takes control of another one – the very name indicates that the company
that acquires the other is the dominant one. Generally, larger companies acquire
smaller companies. In such cases, the company takes over a smaller one and establishes
itself as the owner.
The main aim of a merger is to make use of the assets of both companies, and combine
them to create a new entity whose worth is more than the sum of the two original
entities put together. In a "merger of equals," the stocks of both companies are
surrendered and new stocks are issued. That is, mergers occur when two companies
pool their resources to function together. Acquisitions, on the other hand, require one
firm to buy another – the bigger company buys all the shares of the smaller company, or
buys all of its assets. No new stocks or shares are issued in case of an acquisition, nor is
a new corporate entity registered.
The main differences between the two are:-
Merger takes place between two entities of less or more size while in acquisition,
a larger firm purchases the smaller one.
There is a change in title of entities after merger while in acquisition, target or
acquires company works under the title acquirer company.
Ownership and management structure remains almost same consists upon the
members of both entities. There is no involvement of target company
management after acquisition. Purchaser company owns the whole
Merger means the legal consolidation of two companies into one entity. One the
other hand acquisition means the legal takeover by the one company to another
company and completely becomes the new owner of the acquiree company
Merger is a mutual decision while acquisition can be friendly or hostile.
Merger has higher legal cost as compare to acquisition.
Dilution of ownership occurs in merger while in acquisition, the acquired doesn’t
experience the dilution of ownership.
Merger is time consuming as merging companies have to deal with many legal
issues. Acquisition is a faster and easier transaction.
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