What is the difference between a merger and an acquisition?

The term mergers and acquisitions is familiar to most people in the business world; the words spoken as if one. And the majority of business owners know it often involves two companies joining forces to become bigger and better than the competition. 

But mergers and acquisitions are not the same thing. You could be forgiven for thinking they are seeing as they're often paired together. That would be like thinking that these are the same: births, deaths & marriages.

Yes, it would be easier if the powers that be kept things separate, but you can see the theory behind grouping them together. It's no different in business, and the obvious reason for the merger & acquisition relationship is because both are the most common strategies used when restructuring happens. Like love and marriage.   

Mergers and acquisitions: the differences

When you buy something, although the majority of people wouldn't use the word in everyday life, you acquire it. “I acquired a new car today, dear.” And when water spills over multicoloured paint, the colours blend or merge together. So, how does that pan out from a corporate angle?  

Mergers

It boils down to the old adage 'strength in numbers'. To merge companies is sometimes the only way a business can become its most productive and profitable in a cut-throat corporate world. There are several types of mergers, defined by the type of relationship the companies share. 

Horizontal mergers join competing businesses in the same industry, who make or sell the same goods. 

Vertical mergers typically link things like production and supply, hence cutting out middle men. 

A great example from the high street is the Carphone Warehouse and Dixons merger, adding PC World and Curry's into the relationship, they gave birth to Dixons Carphone.

Conglomerations happen when two companies with little in common business-wise to join up; while market-extension mergers allow businesses with the same products sold in different markets to exploit both markets. Product-extension mergers apply to the same market with similar products.  

Acquisitions 

If we call a spade a spade, then acquisitions are what most of us call a takeover. And unless you've spent the last decade on the moon, you'll know there have been plenty of takeovers in recent times, like Dell taking over EMC. They're becoming more popular than mergers and, unfortunately the general tone is big businesses are hoovering up all the little ones so they can rule the world. 

Of course, for the small businesses who've struggled through difficult times, this can be a lifeline; they don't scrape by in the face of big business or go bankrupt.  

Merger and acquisition: the bottom line

Employees may view an acquisition as a takeover and panic; merging with a bigger company could have the same effect unless you've already mentioned a pay rise and state of the art technology. Mergers sound beneficial, and they should be to the companies involved. Both have financial and tax benefits, but only one is an attempt at absolute market domination.  

Accountants in Scunthorpe

Want to know more about mergers & acquisitions? Call one of our accountants in Scunthorpe on 01724 844876 or email scunthorpe@hwca.com for m&a advice. Alternatively contact us online.