Mergers & acquisitions are more than just buying and selling companies from each other. In a merger, two companies come together to become one.
Merger
A business transaction where two separate companies are combined to form a single legal entity is called a merger. Mergers are common, and often between companies of similar size and scope. The remaining companies take over the assets and liabilities of the other company. Mergers are usually done to expand a company’s footprint, expand into a new sector, or gain market share.
Types of mergers
Depending on the purpose of the company, there are different types of mergers.
Horizontal merger: between two companies operating in the same industry. This merger occurs when two companies offer the same product or service to the same market. These are common in the industry with smaller companies aiming to create a larger business with greater market share. Gas giant Exxon and gas giant Mobil in 1998 are examples of horizontal integration.
Vertical: When two companies that produce parts or services for the same product merge, the merger is called a vertical merger. If two companies operate in each other’s supply chain, the companies are vertically integrated.
Merger: If the companies are operating in separate industries that have nothing in common from a commercial point of view, the merger is called a combination.
When the Walt Disney Company and the American Broadcasting Corporation (ABC) merged in 1995, a syndicate was created. Synchronous mergers occur when companies offering different products and services combine to operate in the same location and sell to the same customer base. This type of combination allows the company to sell new products. An example of a simultaneous merger is Citigroup’s 1998 merger with travel insurance.
Market consolidation: This type of merger occurs between companies that sell the same product but compete in different markets. Companies that engage in market development partnerships seek access to a larger market and, as a result, a larger customer base.
Acquisition
An acquisition is a business transaction in which one company buys another company in whole or in part in order to gain control of the company. Purchases are common within a company or may be made with or without the consent of another company. Most people hear about sales of well-known companies, but they often happen in small and large companies. The purchase is usually done with the help of an investment bank because the approvals and tax implications are complicated.
Type of acquisition
Crossover: Crossover acquisition occurs when a company buys another company that operates in the same industry and produces similar products and services. This type of acquisition is done with the aim of increasing market share and eliminating competition.
Vertical: A vertical purchase is a purchase from a company that operates a different part of the supply chain. This type of procurement can help streamline operations, reduce costs and improve efficiency.
Negative: In a negative takeover, the acquiring company seeks to buy the target company on its own terms. In this case, a controlling company is interested in another company and does not agree to take control of the company.
Friendship: It’s easier to have a good friend than a hater. In this company, once the goal is agreed upon, both parties work together to complete the task.
CONGENERIC: A simultaneous acquisition in which one company buys another company that offers different products and services but caters to the same customer base.
CONSOLIDATED ACQUISITION: A conglomerate acquisition occurs when one company buys another company from a separate firm. For example, Microsoft acquired the professional networking website LinkedIn in 2016.
Acquisition: When a company buys, it buys shares of another company with the aim of controlling the company’s interests.
MERGER VS ACQUISITION
CONCLUSION
Mergers and acquisitions of companies are different. A merger is a combination of two companies that buy another company to form a new legal entity.