What’s the difference between mergers and acquisitions?

Two strategies that business owners can employ for growth are mergers and acquisitions. Often, these terms are used interchangeably, but they are actually very different in meaning.

Taking either route is a significant decision for any business owner, so it’s important to have accurate information. Outlined below are the key differences between mergers and acquisitions.

The benefiting party

A merger typically involves both companies forming one new entity and pooling one another’s resources. This means that both companies involved in the merger reap benefits and potentially become more profitable under the new brand.

An acquisition, on the other hand, generally involves one business taking over and the other ceasing to exist or operate. This often occurs when the acquired company has been struggling financially and there is no feasible way other than an acquisition for operations to continue.   

Distribution of shares

The share structure during an acquisition tends to remain the same. Shareholders can still purchase shares in the acquiring and expanding company, but the acquired business usually ceases to exist.

In contrast, a merger brings opportunities for new shareholders to purchase shares in a brand-new venture.

Restructuring of leadership

Both mergers and acquisitions can bring significant changes, but the leadership tends to remain constant during an acquisition. The CEO is likely to be the same figure that led the acquiring business beforehand.

In mergers, however, the hierarchy tends to be completely restructured. There may be various leaders who need to take on new roles and the head of the company may be a completely different figure.

Mergers and acquisitions are both viable corporate strategies, but it’s important to be informed about the distinctions between the two. We help businesses understand the legal aspects of corporate strategy and help them be successful in their endeavors. Contact us for a consultation.