Because these two words commonly appear alongside one another with the word “and” in-between them, it is completely understandable to think they mean the same thing. This, of course, is not true. To solidify your understanding of the terms, we will explain what each one means and then give a real-world example of each.
A Merger
This is a legal term for when two different companies merge. The reason for this occurring is commonly referred to as “friendly” because both entities are joining to become more powerful. Both companies are in better positions after a successful merger.
Imagine two smaller advertising agencies merging for the sake of combining talent, resources, reach, and clients. This might be done in hopes to make them more competitive within the space as they compete against other, larger firms. Ideally, they are looking to lower costs and increase their profits. A new management structure will likely be created comprising parts of both firms.
An Acquisition
This is different than a merger in that a larger company typically acquires a smaller company or its assets. Rather than combining to form a new company, one company absorbs another one by purchasing it. An acquisition does not have the friendly connotation with it that a merger does. One company is seeking out another company’s resources. Think of a tech company that wants to acquire a rival company’s technology. Not only will this increase your share of the market (with one less competitor), but they will also be investing in someone else’s developments rather than building their own.
Generally speaking, asset purchases, instead of stock purchases, are more common in acquisitions than in mergers.
Examples
The example of a merger is going to be one where both companies stood to benefit. One of the easiest mergers to use as an example is when Disney merged with Pixar.
Both companies were very much oriented towards family entertainment, but Disney had significantly more money to invest into production and marketing. When the two companies merged, Disney was able to maintain its status as the premier source for family entertainment, and Pixar’s ability to create films for a large audience was exponentially increased because of their ability to tap into Disney’s financial resources.
Two examples of acquisitions involve the company, Vodafone, a telecommunications company based in the United Kingdom. In 2000, they overtook a German company called Mannesmann. This led to Vodafone becoming the world’s largest mobile operator.
Years later, Verizon bought out Vodafone’s stake to make Verizon the biggest mobile operator in the United States.
Neve Webb
Whether you are looking to merge with or acquire another business, Neve Webb will work closely with you. Minimize the risk to yourself and your business by seeking out the appropriate legal counsel to advise you about the deal, the signing of contracts, and to ensure everything is done per the law. Contact us online today to schedule a consultation.
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