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What's The Difference Between Mergers and Acquisitions?

General

updated:
8.29.22
merger vs acquisition

Even people outside of the corporate and finance industries are familiar with some of the biggest mergers and acquisitions of recent years: Disney and Pixar, Sirius and XM Radio, Exxon and Mobil, and Facebook and Instagram.

Mergers and acquisitions - essentially business marriages or consolidations - are often complex, multi-million dollar, or even multi-billion dollar, business transactions. And behind most transactions, skilled corporate and commercial business lawyers expertly handle comprehensive analysis, advising, negotiations, and compliance matters.

Sales and transfers of securities are regulated, so mergers and acquisitions are subject to federal rules and regulations. The laws of the state of incorporation will also apply. If the buyer is a foreign entity, the Foreign Investment Risk Review Modernization Act of 2018 will apply, establishing certain mandatory filing requirements.

Merger vs Acquisition - or Mergers and Acquisitions?

This blog post will explore what is the difference between a merger and an acquisition. These transactions occur in nearly every sector of the economy:

  • Energy
  • Financials
  • Healthcare
  • Industrials
  • Real estate
  • Communications
  • Utilities

Although they have many distinctions, mergers and acquisitions have commonalities and are often mentioned together by reporting outlets, like salt and pepper or peanut butter and jelly. They are so commonly grouped that the finance industry even has coined an abbreviation for them— M&A.

What Is a Merger?

difference between merger and acquisition

A merger occurs when two individual corporations or companies decide to create a new business entity. Although the resulting “merged” entity can be a wholly new entity, it is common for one of the companies to merge into or combine with the other company.  They can combine their name to preserve brand recognition. For example, when oil powerhouses Exxon Corp. and Mobile Corp merged together, they became ExxonMobil. When General Electric’s National Broadcasting Company and Vivendi’s Universal Entertainment merged, the resulting new company was NBC Universal.

There are many incentives for top companies to merge, including:

  • Higher market share and greater financial strength for both companies;
  • Access to the best talent in the industry;
  • Access to vendors, suppliers, and materials;
  • Access to facilities, machinery, equipment, and real estate.

Mergers may be subject to state corporation laws, longstanding Federal Securities Laws (the Securities Act of 1933 and the Securities Exchange Act of 1934), and SEC and regulatory filings. Even if there are a lot of details to be worked out, mergers are generally friendly transactions as both parties agree to merge together and join forces. There are a number of common types of mergers:

  • Conglomerate: Two or more companies engaged in unrelated business activities merge together.
  • Congeneric: Two or more companies with complementing products or overlapping factors merge together to access a larger customer group.
  • Market Extension: When companies are in the same type of business but compete in different markets and join together.

When companies decide to merge, they usually have similar size and scale operations, and awareness of the brand.

What Is an Acquisition?

An acquisition is not the joining of forces, but rather one company taking over another and the old company essentially dissolving and becoming part of the new company. Typically, a smaller company is acquired by another in a strategic move. Common reasons for an acquisition are:

  • A company wishes to lower their operational costs;
  • A company wants to acquire talent;
  • A company desires to alter supply chains;
  • A company wishes to acquire important assets that would be challenging to acquire independently.

Acquisitions are in the news on a nearly daily basis. Sometimes the acquired company is a small one that’s not well known. Google has made 237 acquisitions and Amazon has made 89 acquisitions. You may be familiar with some of the airline industry acquisition deals, like when American Airlines acquired U.S. Airways and Alaska Airlines acquired Virgin America. Acquisitions can be complex and take years.

Examples of Mergers and Acquisitions

merger or acquisition

Merger or acquisition? The word “synergy” means that the combined effect of something is greater than the sum of their separate effects. This thinking is the reason for many M&A transactions, and companies are looking for ways to get ahead when it is difficult to compete in competitive industries. Below are some more examples to help you understand what's the difference between a merger and an acquisition:

Examples Of Corporate Mergers

  • Glaxo Wellcome and SmithKline Beecham;
  • Frontier Airlines and Spirit Airlines;
  • H.J. Heinz Co. and Kraft Foods Group;
  • AT&T and Time Warner.

Examples Of Corporate Acquisitions

  • Google acquired Fitbit
  • Uber purchased Postmates
  • Yum Brands bought Habit Burger Grill
  • E&J Gallo acquired RumChata Liqueur
  • Twitter acquired Quill.

Of course, not all mergers are successful. Daimler-Benz and Chrysler’s 1998 merger is one failed merger transaction which is regularly used in business school classes about how culture classes lead to a breakdown.

Discussions of the difference between merger and acquisition often involve examples of large transactions. These examples are used for brand awareness, but it is important to understand that mergers and acquisitions occur all the time involving small and medium size companies. M&A attorneys can help with all aspects of these transactions

Main Differences Between Mergers vs Acquisitions

There are many considerations that go into decisions whether a transaction should be a merger or acquisition. A major deciding factor is the size of each business and whether it makes sense financially and logistically to merge. Mergers are generally a mutual, consensual joining of business forces, and acquisitions are much more transactional.

Merger Acquisition
Transaction Two companies combine to form a new business. One company acquires another company.
Mutual Consent Both parties agree to join forces. May not be mutual / could be hostile
Could force employees to relocate or accept layoff packages
Organizational Name A new name is formed, may be a combination of both company’s former branding. The former company may still operate under their business name, or may be forced to operate as part of the new company.
Corporate Structure Similar size and scale businesses merge A larger company acquires a smaller company
Executive Power Power is shared between the two companies, although there may be shifting of executive roles The acquiring company is in charge.
Ownership Shares New shares may be issued. New shares are generally not issued.

Conclusion

What is merger and acquisition law? At Sequoia Legal, our legal team is well versed in M&A law - we provide advisory services to organizations looking to understand merger versus acquisition benefits and take appropriate actions. Call us at (303) 476-2851 or contact us online to schedule a free consultation with one of our attorneys.

Andrew Lopez

Andrew is the founder and managing member of Sequoia Legal, LLC headquartered in Denver. He advises domestic and foreign companies and organizations, entrepreneurs and individuals on a variety of corporate and international regulatory and transactional matters

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