In the world of investing, mergers and acquisitions (M&A) are often lumped together. Both involve the combination of assets of two companies. Where the difference lies is in the state of the transaction, that is, whether the joining of the two companies is hostile or friendly. How the transaction is received by the company’s stockholders, board of directors, and employees is the key difference between these two terms

  • Merger of Equals

    • A merger refers to the coming together of two companies that can be regarded as equals. Two factories decide to join forces in order to increase the strength of their assets, have a higher market and consumer base, and ultimately make higher profits. The two businesses or corporations become jointly owned and are registered as a new legal entity -- which has an identity different from the two companies that came together for the merger.

    Acquisition

    • An acquisition occurs when one company or corporation takes control of another one -- the very name indicates that the company that acquires the other is the dominant one. Generally, larger companies acquire smaller companies. In such cases, the company takes over a smaller one and establishes itself as the owner.

    Shares and Value

    • The main aim of a merger is to make use of the assets of both companies, and combine them to create a new entity whose worth is more than the sum of the two original entities put together. In a "merger of equals," the stocks of both companies are surrendered and new stocks are issued. That is, mergers occur when two companies pool their resources to function together. Acquisitions, on the other hand, require one firm to buy another -- the bigger company buys all the shares of the smaller company, or buys all of its assets. No new stocks or shares are issued in case of an acquisition, nor is a new corporate entity registered.

    Amicable Mergers, Hostile Acquisitions

    • Given that a merger brings together two equals, both parties are willing to enter into the deal. Acquisitions however can be either amicable or hostile; sometimes, a bigger firm takes over a smaller one, even when the management of the smaller firm is against the takeover. Sometimes a bigger company buys out a smaller one, but the process is dubbed a merger to avoid making a negative impression.