Companies constantly seek strategies to expand, diversify and stay competitive in the dynamic business realm. Two popular methods businesses use to achieve these goals are mergers and acquisitions. Both involve consolidating businesses or their assets but differ in structure, process and outcome.
Mergers and acquisitions are both complex processes that can significantly change the landscape of the industry they’re in. While they might seem similar to those unfamiliar with the terms, they have distinct differences that are important to recognize.
What’s involved in an acquisition?
In an acquisition, one company purchases another company or its assets. The acquiring company essentially takes over the target company. In most cases, the target company ceases to exist as an independent entity. The motives behind acquisitions could vary from gaining a competitive edge, acquiring new technology or entering a new market. In some cases, this is known as a hostile takeover.
How does a merger stand out?
A merger involves two companies coming together to form a new entity. Both companies cease to exist as separate entities and combine their resources, strengths and assets. Mergers are typically seen as a union between equals, and the goal is often to achieve better efficiency, expand the customer base or tap into new markets.
While mergers and acquisitions are strategic moves companies make to grow or improve their position in the market, they’re carried out in unique ways. Knowing the difference can help stakeholders understand the implications and the potential outcomes of such business moves.
Business owners considering combining companies in either of these manners should ensure they review all contracts and documentation. Having someone on your side who can assist with this is critical so you don’t miss any important points.
