What is the difference between a merger and an acquisition?

On Behalf of | Jan 25, 2021 | Business Law | 0 comments

Typically when a merger is on the table, the word “acquisition” also comes part and parcel with it. The same is true vice versa. In fact, people mention the terms merger and the term acquisition together so often that many people do not understand the difference between these two legal actions.

Both mergers and acquisitions have much in common. For example, both involve restructuring the corporate order of the business (or businesses) in question. However, there are big differences in terms of how business owners initiate mergers and acquisitions, the procedure associated with both processes and the ultimate outcome.

What is a merger?

A merger involves two or more businesses coming together in order to form a completely new enterprise. Generally speaking, during the course of the merger the new entity will have a different name, different management, and different ownership that involves members from all of the previous companies. Mergers are always mutual decisions. The idea behind a merger is for all of the entities to combine in pursuit of greater benefits, even if it reduces their individual power as companies and decision-makers.

What is an acquisition?

An acquisition involves one business essentially taking over the other. During the course of an acquisition, the business in the position of acquirer needs to buy, at minimum, 51% of the other company’s stock. This usually happens when one company has more power and money than the other. Acquisitions may be mutual, but they also do not have to be. If it happens without the consent of the acquired company, the law considers this a “hostile takeover.”