Difference Between Merger and Acquisition: Key Insights for Business Growth

Mergers and acquisitions are vital terms in the world of business. A merger means two companies are combined into one, and an acquisition means one company partially purchases another. Both business strategies aim to grow and enhance a business's market presence. 

However, they differ vastly in process, structure, and result. Understanding the differences is key to thriving in the business world. Let us know the difference between merger and acquisition.

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What is Merger?

A merger occurs when two or more legally independent establishments decide to combine their operations. They merge their assets and form a new entity to eliminate further issues. This process significantly changes for all parties as both companies cease to exist individually and move all their assets to the newly formed company. In return, the new company issues shares, which are then fairly distributed to the shareholders of the dissolved companies.

What is Acquisition?

​An acquisition occurs when one organisation purchases another (in most cases, a more prominent company acquires a smaller one) partially. The agreement dictates the level of authority each party maintains, often favouring the company contributing more resources—be it logistical, physical, or financial. 

It is necessary to know that the acquired company may continue to operate or be dissolved, depending on the particulars of the deal. Moreover, partners from the acquired company may become stakeholders in the acquiring company, reflecting the integration of both entities.

Different Types of Mergers

The most popular types of mergers in businesses are:

• Conglomerate Merger: In this type of merger, two organisations combine with no shared traits to reduce their commercial risk or multiply assets.
• Market Extension Merger: It happens between firms in the same business sector but belong to different markets. These firms merge to acquire a significantly greater market share.
• Vertical Merger: When two companies decide to manufacture different products using the same supply chain, this merger is called a vertical merger. It helps increase their efficiency.
• Horizontal Merger: A horizontal merger occurs when two establishments within the same industry are combined with similar frameworks and within the same market. 

Different Types of Acquisitions

Here are the different types of acquisitions:

• Value Creation: When an acquisition occurs to increase market value, the purchasing company enhances its performance and resells it for profit.
• Acceleration: A bigger company may acquire a smaller one—this process is called acceleration acquisition. It happens because the products of the particular smaller company are more attractive. 
• Speculation: A speculative acquisition happens when a more significant enterprise acquires a smaller one to optimise future growth opportunities with an innovative product or service. 
• Consolidation: In an oversaturated market, a company acquires a competitor to remove it from the industry and reduce competition.

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The Key Difference Between Merger And Acquisition

Look at the table that shows the merger and acquisition differences in a simplified way:

Top Examples of Mergers and Acquisitions

After exploring the difference between merger and acquisition, you must check the following example of merger and acquisition: 

• Exxon and Mobil Merger

The companies merged in November 1999 after receiving the Federal Trade Commission (FTC) approval. Before the merger, Exxon and Mobil were the industry's leading oil producers. As part of the restructuring process, the new entity sold over 2,400 gas stations across the United States. This entity continues to operate under the name Exxon Mobil Corp. (XOM) and trades on the New York Stock Exchange (NYSE).

• AT&T Buys Time Warner Acquisition

On June 15, 2018, AT&T Inc. (T) acquired Time Warner Inc., as reported on AT&T's website. However, due to the U.S. government's attempt to prevent the deal, the acquisition faced many issues and went to the courts. In February 2019, an appeals court approved AT&T's acquisition of Time Warner.

The $42.5 billion acquisition is projected to generate $1.5 billion in cost savings and $1 billion in revenue synergies within three years of completion. On May 17, 2021, AT&T revealed plans to spin off its WarnerMedia division and merge it with Discovery.

Final Words

Understanding the difference between merger and acquisition is crucial. Integrating two or more different companies' processes, teams, and templates poses significant challenges during mergers. This is why acquisitions are more common, as they allow the acquiring company to impose its own culture, mission, vision, and values on the acquired entity. 

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