The term merger and acquisition has been rampant lately, however, little did people know about their differences, for instance, the term merger means that, it is merging two organizations into one, while the term acquisition means acquiring which is to takeover something. However, despite the difference of the two terms, the two terms are sometimes combined and referred to as M&A. However, the combination of both merger and acquisition is not just a normal thing because it means that the value of a shareholder is greater than the value of the sum of two companies. Both the terms are used alternatively, but they have a slight difference in their meaning.
An acquisition is buying one organization by another. It can be a friendly takeover or hostile takeover. In friendly acquisition, companies executives negotiate whereas in hostile acquisition, if the bidder continue to seek it even if the company (or target) is unwilling to agree. Due to the size of companies, it has been known that the larger companies take over those smaller companies. Nevertheless, this is not applicable at all times since there are times where the smaller companies are the ones who overtake the larger companies and it only keeps its name in order for the formulation of the new firm. The acquisition where the smaller companies overtake the bigger ones are called as the reverse merger.
Mutual decision can also happen between two organizations and it is also referred as a merger since the two organizations agreed on a decision of being one. The good thing about a merger is that, the two organizations agreed to become one and work as one rather than working on separate ways. It has also been known that the stocks of the newly merged organizations due to merger, are being issued, however, their stocks before they were even merged with each other are being surrendered. The merger can be horizontal merger, conglomerate (or congeneric) merger or vertical merger; it depends on the merging companies nature. It can only be referred to as a horizontal merger if the two companies have competed in the same product line. If two companies of different product line agreed on a merger such that there products together enhances the company’s value is said to be vertical merger. At last, the companies that do not have similar product lines at all decided to merge; this type of merger is called conglomeration merger. Nevertheless, it can also be referred to as purchase mergers depending on how the merger has been financed.