The main objective of both merger and acquisitions are the same, that is to restructure their corporate order. That means both are involved in joining two or more than two business entities to restructure their corporate structure according to changes in market or in their sector.
Merger involves combining an individual organization to give rise to a new business unit or entity. In merger, a new entity, name, ownership, employees (combination of organizations) and management will form. The benefit in the merger is mutual that means merger organizations will have certain benefits.
The main objective of merger is to expand their present market share by entering into new markets or expanding their present market. Merger also reduces operating cost and increases revenue and profits. New shares will be issued and shares will be distributed accordingly between shareholders of organizations.
In acquisition, one organization will take over the other organization or organizations.Generally one who takes over will have strong finances and takes over organizations having weak or less finances.
After acquisition all operations and assets cease to exist. The business is acquired by purchasing more than or equal to 51% of shares of the company and gains control over that company.
Acquisition can be taken without latter consent called a hostile takeover. Acquired companies can continue their operations under Acquirer Company. In acquisition, no new shares are issued and mostly company names will not exist and rarely retains their original name.
Both merger and acquisition look the same but they differ in terms of outcome, initiation and procedures.
The major differences between a merger and an acquisition are as follows −
|Two or more entities will form as a single entity.||One entity will purchase another entity.|
|New company will be formed.||New company has not been formed.|
|Decisions taken on a mutual basis.||Hostile decision nature.|
|Decreases competition.||Instantaneous growth.|
|Operational efficiency increases.||Acquiring company size is more.|
|Requires more legal formalities.||Requires less legal formalities.|
|Less power distribution.||Acquiring companies will get dictating powers.|
|New stocks will be issued.||No new stocks will be issued.|