Differences Between Mergers and Acquisitions

Although the terms merger and acquisition are often used as though they are synonymous, they mean different things. The differences between a merger and acquisition are important to value, negotiate, and structure a client's transaction. Mergers and acquisitions both involve one or multiple companies purchasing all or part of another company. The main distinction between a merger and an acquisition is how they are financed.

A merger happens when two firms, often of about the same size, agree to move forward and exist as a single new company rather than remain separately owned and operated. This kind of action is more specifically referred to as a "merger of equals." Mergers are often financed by a stock swap, in which the stock owners in both companies receive an equivalent quantity of stock in the new company. The stocks of both companies are surrendered and new company stock is issued in its place. On the other hand, when one company takes over another company and clearly establishes itself as the new owner, the purchase is called an acquisition. Legally, the target company ceases to exist, the buyer swallows the business and the buyer's stock continues to be traded. Acquisition refers to two unequal companies becoming one and the financing can involve a cash and debt combination, all cash, stocks, or other equity of the company.

A purchase deal will be called a merger when the CEOs of both the companies agree that joining together is in the best interest of both of their companies. When the deal is unfriendly - that is, when the target company does not want to be purchased, it is regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition, in reality depends on whether the purchase is friendly or hostile and how it is announced. In other words, the actual difference lies in how the purchase is communicated to and received by the target company's board of directors, shareholders, and employees.

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Mergers And Acquisitions provides detailed information on Mergers And Acquisitions, Corporate Merger Acquisitions, Merger And Acquisition Strategies, Merger And Acquisition Companies and more. Mergers And Acquisitions is affiliated with Selling A Small Business.

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