The term “merger” literally means merging of two organizations into one; term “acquisition” means to takeover or something acquiring. Merger and acquisition is also referred to as M&A. The concept behind this combining is a fact that the value of shareholder is above than that of the sum of two companies alone. Although the two terms are used alternatively, their meaning still have a difference.
The meaning of the terms acquisition is that, having the chance to buy one organization using the other. There are only two approaches in an acquisition, it can only be either a friendly approach or a harsh one. 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. This type of acquisition is called 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. As a result the newly merged firm’s stocks are issued and stocks of old companies (the stocks of two companies before merging) are surrendered. There are different types of merger that can be a result, it actually depends on the nature of the company, the type of merger includes horizontal merger, conglomerate merger and the vertical merger. If the two companies which have decided on merging compete in same product line it is said to be horizontal merging. However, the vertical merger means that the two companies of different product line have already dealt with each other that their products could enhance the value of a company, thus, resulting to a merger. Finally, you can call a merger as a conglomerate merger if the two companies have different product lines but still decides to merge with each other. Nevertheless, it can also be referred to as purchase mergers depending on how the merger has been financed.