Mergers vs. Acquisitions: Which Tactical Alliance Is Better?

While discussing about the major growth drivers of capitalism today, competition and growth enablement are sure to be mentioned. When a company is facing competition, it must cut costs while establishing newer businesses. One solution is to acquire competitors so that they no longer pose a threat to the business world. Today, businesses are also expanding their M&A actions by acquiring new product lines, intellectual property, human capital, and customer bases.

The two most spoken about in the business arena are Mergers and Acquisitions - both terms are unique and refer to the conjunction of two or more companies that are producing services and products which are in demand in the market.

Is There any Benefit to the Organisation from Mergers?

A merger occurs when two distinct products are combined and an outward force is installed to form a new, joint organisation. Meanwhile, mergers and acquisitions may be completed in an attempt to increase a firm's reach or gain market share in order to create shareholder value.

In legal terms, mergers require two companies to consolidate their operations in new bags for a new ownership and management structure. There is a more common distinction between friendly and hostile transactions.

Mergers do not require any money to complete, but they dilute each company's individual power. In reality, friendly mergers of equal qualities that do not have business malpractice and place very uncommon companies that benefit from combining forces exist. It is unusual for two companies to benefit from joining forces with two different CEOs who agree to give up some authority in order to realise those benefits. When this occurs, the stock of both companies is surrendered, and new stock is issued in the name of the new business identity.

In typical thoughts, mergers are completed for the reduction of operational costs, expansion of products and services into new markets, and boost of revenue and profits. Mergers are usually voluntary and involve companies that are roughly sketched with the same size and scope.

Because of an acquisition of a new company, there is no change emerging in the business world, instead, there are smaller companies that are often consuming and ceasing their existence with the assets for becoming part of the larger company.

What drives companies to make acquisitions?

Acquisitions, which are sometimes known as takeovers are generally carried with a more negative connotation than that mergers. As a result, the acquiring companies might be referring to a merger even though it is a clear takeover. An acquisition takes place when there is only one company taking over all the operational management decisions of another company. Acquisitions require a large amount of cash; however, the buyers are bestowed with maximum power which is always absolute.

Companies might be acquiring another company for purchasing the supplies and there is a constant need for improvement within the economic boundaries of scale – it lowers the cost per unit as production increases. Companies might be looking for improvement in the market share, cost reduction, and expansion into new product lines. Companies are engaging in acquisitions for obtaining the technologies of the target company, which can help in saving years of capital investment costs and research and development.

Since merging is not so common and is taking over in a negative light, the two terms have become increasingly blended and used in conjunction with one another. Contemporary corporate restructurings are usually referenced as merger and acquisition (M&A) transactions rather than simply being a merger or acquisition.

Conclusion

The practical differences between the two terms are slowly being eroded to the new definition of M&A deals.  An acquisition deal which is known as a reverse merger is enabling private companies to become public listed in a relatively short time period. Reverse mergers are developing when private companies are strong in prospects and are eager in acquiring finances by occupying publicly listed shell companies with no legitimate business operations and granted to limited assets. The private companies are reversing merges into the public company and these companies are together becoming an entirely new public corporation with tradable shares.

In general, days leading up to a merger or acquisition, shareholders of the acquisitions are temporary drops in sharable values. In clocks, the shares are in the target firm that typically experiences a rise in value. This might be because of the fact that the acquiring firm will need expenditure capital for acquiring the target firm at a premium to the pre-takeover share prices. Friendly acquisitions are most common and these are occurring when the target firm is agreeing to be acquired, it is the board of directors and the shareholders that are approving the acquisitions. The combinations are often working for the mutual benefit of the acquisitions and the target companies.