Difference Between Acquisitions and Mergers Explained with Table and Examples
The difference between acquisitions and mergers is a fundamental concept in Business Studies and is often asked in school and competitive exams. Understanding this topic helps students explain how companies join, restructure, or expand by integrating with other firms. This knowledge is also valuable in real business scenarios and legal contexts.
| Basis | Merger | Acquisition |
|---|---|---|
| Meaning | Combining two similar-sized companies to form a new entity. | One company takes over another; only the acquirer survives. |
| Consent | Always a mutual agreement between both companies. | May or may not be with mutual consent; can be hostile. |
| Nature of Companies | Usually of similar size, strength, or status. | Acquirer is generally larger and financially stronger. |
| Process | Both companies merge and new shares are issued. | Acquirer buys majority stake in the target company; no new shares. |
| Result/Control | Both lose individual identity to form a new entity. | Acquired company loses autonomy; acquirer controls operations. |
| Example | Glaxo Wellcome + SmithKline Beecham = GlaxoSmithKline | Amazon acquiring Whole Foods |
Definitions: Acquisitions and Mergers
A merger is when two companies of similar size and strength combine to form a completely new company, with mutual agreement. An acquisition is when one company (usually larger) takes over control and ownership of another company, which then loses its separate identity.
Key Differences Between Acquisitions and Mergers
In summary, the difference between acquisitions and mergers lies in their method and outcome. Mergers are friendly and create a new entity. Acquisitions can be friendly or hostile, and one company is absorbed into another. Both serve strategic business growth but impact control, staff, and market differently.
Examples of Mergers and Acquisitions
- Merger Example: Glaxo Wellcome and SmithKline Beecham merged in 2000 to form GlaxoSmithKline.
- Acquisition Example: In 2017, Amazon acquired Whole Foods, bringing the supermarket chain under Amazon’s control.
- Indian Example: The merger of ICICI and Bank of Rajasthan in 2010 is a domestic merger; Tata Steel acquiring Corus in 2007 is a global acquisition.
Types of Mergers, Acquisitions, and Related Concepts
- Types of Mergers:
- Horizontal Merger (same industry, e.g., two banks)
- Vertical Merger (different stages, e.g., manufacturer + supplier)
- Conglomerate (unrelated businesses)
- Types of Acquisitions/Takeovers:
- Friendly Takeover (agreed by target)
- Hostile Takeover (without consent)
- Related Terms:
- Amalgamation (often used synonymously with merger)
- Consolidation (combining several firms into a new entity)
Advantages and Disadvantages of Mergers and Acquisitions
Advantages
- Faster business growth and market expansion
- Combined resources lead to efficiency and synergy
- Can eliminate competition and increase market share
- Diversification of business risks
Disadvantages
- Risk of cultural and management clashes
- Possible job losses due to restructuring
- May attract regulatory and legal scrutiny
- Not all mergers/acquisitions are successful; can lead to financial losses
Real-World Applications and Exam Use
Knowledge of the difference between acquisitions and mergers is essential for Commerce students in school boards like CBSE and ISC, as well as for competitive exams. In business contexts, understanding these concepts helps explain how companies expand or restructure. At Vedantu, we break down such topics for quick revision and practical understanding.
Related Topics and Further Reading
- Financial Market – How and why M&As occur.
- Features of Company – Understanding company structure in M&A.
- Company Law: Companies Act 2013 – Legal framework for mergers and acquisitions.
- Objectives of SEBI – Regulatory role in M&A deals in India.
- Types of Companies – Who can merge/acquire?
- Functions of Financial Management – How M&A shapes finance strategy.
- Law of Demand – Market position after M&A.
- Forms of Organizing Public Sector – Government M&A cases.
- Difference Between Sole Proprietorship and Partnership – Comparing business structures.
To sum up, mergers and acquisitions are both strategic business combinations but differ in approach, consent, process, and business outcome. These concepts are vital for exam success, business understanding, and everyday Commerce awareness. Learn more topics and get exam-ready explanations at Vedantu.
FAQs on Acquisitions and Mergers: Meaning, Differences, and Key Examples
1. What is the main difference between a merger and an acquisition?
In short, a merger involves two companies combining to form a new entity, while an acquisition sees one company taking over another. Key differences lie in the level of mutual consent and the resulting corporate structure.
2. Can a merger happen without mutual consent?
No, mergers typically require the mutual agreement of both companies involved. An acquisition, however, can be hostile if the target company doesn't agree to be acquired.
3. What is an example of a successful business acquisition?
One example of a successful acquisition is Facebook's acquisition of Instagram. This significantly expanded Facebook's reach and user base in the social media market. Other examples could include those from India.
4. Are mergers and takeovers the same?
While related, they're not identical. A merger is a combination of equals, a takeover implies one company gaining control over another, often involving a hostile acquisition.
5. Which is better, merger or acquisition?
There's no universally 'better' option; it depends on strategic goals, market conditions, and the specific companies involved. A merger can create synergy, while an acquisition offers quicker expansion. The success of either depends on careful planning and execution.
6. What are mergers and acquisitions with examples?
Mergers and acquisitions (M&A) are corporate restructuring strategies. A merger involves two companies combining, creating a new entity. An acquisition sees one company taking control of another. Examples include Facebook's acquisition of Instagram and the merger between two large Indian companies.
7. What is the difference between mergers acquisitions and takeovers?
A merger is a friendly combination of equals. An acquisition involves one company buying another, which may or may not be friendly. A takeover is a type of acquisition, usually implying a hostile or forceful acquisition of another company.
8. What is the difference between merger and acquisition in tabular form?
Mergers and acquisitions differ significantly. Here's a summary:
- Merger: Two companies combine, forming a new entity. Requires mutual consent.
- Acquisition: One company purchases another. Consent isn't always required (hostile takeovers).
9. What is the difference between merger, acquisition, and amalgamation?
While similar, there are distinctions. A merger involves two companies combining into a new entity. An acquisition is one company buying another. An amalgamation refers to a joining of several companies into one new entity. The key differences lie in the number of companies involved and the resulting structure.
10. What is the difference between acquisition and buyout?
The terms are often used interchangeably. An acquisition is a broader term referring to one company gaining control of another. A buyout often implies a complete purchase of a company, typically involving private equity or a management team.
11. How does the legal process differ between mergers and acquisitions in India?
In India, both mergers and acquisitions are governed by the Companies Act, 2013, and other relevant regulations. The legal process, including approvals, filings and shareholder agreements, may vary depending on the size and structure of the transaction.
12. What are the accounting treatment and reporting differences for mergers vs. acquisitions?
Accounting standards like Ind AS 103 and IFRS 3 dictate the treatment of mergers and acquisitions. The accounting method depends on whether the acquisition is a purchase or pooling of interests. There are differences in how assets and liabilities are valued and how goodwill is handled.
