In the world of business, acquisitions and mergers are terms used quite frequently. However, not everyone is aware of what these terms actually mean and imply. Quite often, both the terms are used side by side. To put it in simple terms, they mean when two business holdings decide to come together and shape up as one single entity.
Understanding the key difference between a merger and an acquisition
Majority of times, a merger happens when two entities of nearly same clout and size engage in a tie-up and start functioning as one unit. Stocks of both the entities are also merged together. On the other hand, a company acquisition happens when a bigger business entity decides to buy out a company of a smaller scale. This usually assumes the model of a complete buyout or a takeover. An acquisition might be a mutually decided upon takeover or could be the outcome of a bitter feud between the two companies. In the latter scenario, the smaller entity has nothing much to say and usually ends up heeding to the demands of the larger firm. In such a case, the smaller firm stops operating independently and the larger company goes on with trading the small company’s stocks.
Cross border mergers and acquisitions are commonplace in the whole sphere of business activities. They are not a new phenomenon and have been happening since several decades. A classic example of a cross border takeover is when several low-scale British firms stopped operating once they were bought over by Santander, a renowned banking giant from Spain. This was however a smooth acquisition since regardless of the size and clout, both the sides decided to showcase themselves not as an acquisition, but more of a merger.
A classic instance of a merger could be the coming together of SmithKline Beecham and Glaxo Wellcome that happened in the year 1999. Post-merger, both entities became one and came to be known as GlaxoSmithKline. On the contrary, some much-publicised acquisitions that shook the business world include that of Daimler-Benz taking over Chrysler in 1999. On many occasions, acquisitions and mergers are difficult to categorize and it is quite challenging to scrutinize the various elements that go into determining whether a particular merger or an acquisition has proved to be failure or a success.
For a successful merger or even an acquisition, it is very important that both the entities recognize each other’s strengths and weaknesses if they wish to do business in a harmonic way.
Understanding the key difference between a merger and an acquisition
Majority of times, a merger happens when two entities of nearly same clout and size engage in a tie-up and start functioning as one unit. Stocks of both the entities are also merged together. On the other hand, a company acquisition happens when a bigger business entity decides to buy out a company of a smaller scale. This usually assumes the model of a complete buyout or a takeover. An acquisition might be a mutually decided upon takeover or could be the outcome of a bitter feud between the two companies. In the latter scenario, the smaller entity has nothing much to say and usually ends up heeding to the demands of the larger firm. In such a case, the smaller firm stops operating independently and the larger company goes on with trading the small company’s stocks.
Cross border mergers and acquisitions are commonplace in the whole sphere of business activities. They are not a new phenomenon and have been happening since several decades. A classic example of a cross border takeover is when several low-scale British firms stopped operating once they were bought over by Santander, a renowned banking giant from Spain. This was however a smooth acquisition since regardless of the size and clout, both the sides decided to showcase themselves not as an acquisition, but more of a merger.
A classic instance of a merger could be the coming together of SmithKline Beecham and Glaxo Wellcome that happened in the year 1999. Post-merger, both entities became one and came to be known as GlaxoSmithKline. On the contrary, some much-publicised acquisitions that shook the business world include that of Daimler-Benz taking over Chrysler in 1999. On many occasions, acquisitions and mergers are difficult to categorize and it is quite challenging to scrutinize the various elements that go into determining whether a particular merger or an acquisition has proved to be failure or a success.
For a successful merger or even an acquisition, it is very important that both the entities recognize each other’s strengths and weaknesses if they wish to do business in a harmonic way.
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