Difference Between Acquisitions and Mergers

Difference Between Acquisitions and Mergers

A brief summary of what sets these two apart.

By Marcia Smith

Business acquisition

An acquisition is a process in which a company buys a majority, or sometimes all, of a target company’s ownership stakes in order to assume control of it. They can be beneficial to the purchasing company as part of their growth strategy, because by incorporating the target company’s existing operations and markets, they don’t need to expand their own.

The acquisition process can either be hostile or friendly. In a friendly acquisition, the target will have given an agreement to be taken over, whereas a hostile acquisition is done without this agreement. The impact of this is that the purchasing company needs to actively purchase its majority stake in the target.

Business merger

A business merger is a form of M&A. In a merger, two companies, usually similarly-sized, join together to proceed as one united company. Following a business merger, the stocks of the two individual companies are given up and stock is issued in the name of the new company in its place.

There are 5 distinct types of merger: vertical mergers, horizontal mergers, market extension mergers, product extension mergers and conglomerate mergers.