Merger vs Acquisition: What’s the Difference?

The terms “merger” and “acquisition” are often used interchangeably when referring to the combination of two businesses. Ownership of a business, of course, is typically represented in stock shares. A business can merge with or acquire another business by purchasing shares of its stock. Mergers and acquisitions aren’t the same, however. There are a few differences that distinguish mergers from acquisitions.

Merger vs Acquisition: What’s the Difference?

What is a Merger?

A merger is a mutually agreed-upon partnership that involves two businesses combining into a single entity. Businesses often merge for a variety of reasons. If they directly compete with each other for the same customers or clients, for instance, they may agree to merge. Alternatively, businesses may merge to take advantage of each other’s market. During a merger, two businesses will agree to combine their businesses into a single and new entity.

What Is an Acquisition?

An acquisition occurs when a large business purchases a majority stake in a smaller business. Large businesses often acquire smaller businesses. Google, for example, has acquired hundreds of businesses since its origins during the late 1990s. With acquisitions, large businesses can take over a smaller business’s operations.

Differences Between Mergers and Acquisitions

Mergers and acquisitions are similar. They both involve two businesses turning into a single business. What’s the difference between them exactly?

One of the main differences between mergers and acquisitions is that the former results in the creation of a new entity, whereas the latter does not. With a merger, the two businesses will form a new entity. With an acquisition, the large business will simply take over the smaller business’s operations. The smaller business will still be active; it will simply be owned by the large business that acquired it.

Another difference between mergers and acquisitions involves the size of the businesses. Mergers may include businesses of any size. In some cases, one business is larger than the other business. In others, the two businesses are of equal size. In comparison, acquisitions almost always involve a large business buying a smaller business. The large business will acquire the smaller business by purchasing shares of its stock. Hopefully, this gives you a better understanding of the differences between mergers and acquisitions.

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