Understanding And Differentiating Merger And Acquisition

Merger refers to the mutual consolidation of two or more entities to form a new enterprise with a new name. In a merger, several companies of the same size agree to integrate their operations into a single entity, with shared ownership, control, and benefits. This is a kind of amalgamation. For example, M Ltd. and N Ltd. Formed a new company P Ltd. The reason for adopting the merger by many companies is to overcome trade barriers, reduce competition and achieve synergy, as well as to unite the resources, strengths, and weaknesses of the merged companies. Shareholders of old companies become shareholders of the new company. The types of mergers are as follows:

1. Horizontal
2. Vertical
3. Homogeneous
4. Reverse
5. Conglomerate

When one enterprise's business purchases most or all of another enterprise’s shares to gain control of that company is known as acquisition. This can be done either by purchasing the company's assets or by acquiring ownership of more than 51% of its paid-up share capital. In acquisitions, the firm which acquires another firm is known as the acquiring company, while the company which is being acquired is known as the target company. The acquiring company is more powerful in terms of size, structure, and operations, which dominates the weaker company i.e. the target company. Most firms use acquisition strategies to achieve rapid growth, expanding their area of competition and operations, market share, profitability, etc. at a short notice. The types of acquisitions are as follows:

1. Hostile
2. Friendly
3. Purchase

In M& A, the private equity management company plays a significant role. A private equity company is a mine of money looking to invest in or to buy companies. The sole purpose of private equity is buying and selling companies.

PE firms raise money from limited partners that include university endowments, pension funds, capital from other companies, and funds of funds. Wealthy individuals also invest in PE firms.