Mergers and acquisitions are both types of complex business transactions in which two companies come together as one. On the surface, a merger and acquisition can seem very similar to one another, so much so that people often use the terms merger and acquisition interchangeably or combine them when talking about complex business transactions.
However, while the end result is often similar, the process by which each takes place can be different. Here is an explanation of what each of the terms means, as well as recent examples of each.
An acquisition is more aggressive than a merger. It involves one company taking control of another by purchasing at least a majority of the other company’s shares. The end result is that the target company no longer exists, and the purchasing company takes over its management decision-making and operations.
This may sound like a hostile process, and it can be. However, sometimes the target company is receptive to the purchase and cooperates with the process. Nevertheless, it is ultimately the purchasing company that has absolute power over the transaction.
Examples of recent acquisitions include Google’s acquisition of Android in 2005 and Disney’s acquisition of Marvel Entertainment in 2009.
A merger is a mutual decision by two companies to join together. The goal is to form an entirely new entity that, in theory, will be greater than the sum of its parts.
A merger is a more cooperative process than an acquisition. Though the balance of power between the new merging companies is not necessarily equal, it is usually more even than it is in an acquisition. In an acquisition, one company completely subsumes the other. In a merger, neither company exists in its previous form, but elements of each carry over into the new company.
One of the most recent and most well-publicized examples of a merger occurred between 21st Century Fox and Disney within the last couple of years. Another recent example was the merger between Instagram and Facebook in 2012.