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1. Finances
One of the most significant differences between mergers and acquisitions is how they impact the finances of the businesses involved. In a merger, both companies combine their assets and liabilities. This means that they become one company, and each company takes on a share of the new company’s equity and debt. However, in an acquisition, only the acquiring company takes on the acquired company’s equity and debt. The acquiring company takes on full responsibility for the acquired company’s operations and finances.
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2. Day-to-day operations
In a merger, both companies combine to form a new entity. This new entity may decide to adopt one company’s operations over the other, keep the operations of the two companies entirely separate or something in between. Typically, the newly formed company will work to optimize the strengths of the formerly separate entities and attempt to reduce inefficiencies. In an acquisition, the acquiring company assumes the acquired company’s operations and may or may not decide to implement aspects of the acquired company’s operations.
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3. Taxes
Another important consideration when looking at mergers and acquisitions is taxes. In a merger, both companies involved are typically able to take advantage of tax breaks. Ultimately, this can help to offset some of the costs associated with the union and is a reason that the structure of the combination is an important consideration. In both mergers and acquisitions, there can be a mix of cash, debt or stock to finance the transaction. Each option provides unique advantages and disadvantages and should be carefully considered when structuring the transaction.
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4. Leadership
Leadership is another important factor to consider. In a merger, leadership is typically shared between executives from both companies. It is essential that businesses take this into consideration before deciding on a merger. In contrast, in an acquisition, the company’s leadership is usually replaced by executives from the acquiring company.
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5. Employees
Similarly to company leadership, employees are also impacted by mergers and acquisitions. Typically, in a merger, employees from both companies become employees of the new company. In order for the merger to be successful, company leadership should take the necessary steps to positively join the two teams. However, in an acquisition, the acquired company’s employees usually become employees of the acquiring company.
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6. Regulatory Approval
Another important implication of mergers and acquisitions is the need for regulatory approval. Both mergers and acquisitions that meet a specified threshold of deal size (roughly $100mm) are subject to approval by the Federal Trade Commission (FTC). The FTC will review transactions above a certain size to determine if the transaction will breach antitrust laws, prevent competition or create a monopoly within the industry.
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7. Products and Services
Generally, in a merger, both companies’ products and services are usually retained. On the other hand, in an acquisition, the acquiring company may choose to discontinue some or all of the acquired company’s products and services. In some cases, an acquiring company acquires another company for a specific product or product line. In this case, the acquiring company may integrate this specific product into their product offering while discontinuing the rest.
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8. Agreement
In addition, another key difference to evaluate is the tone of the agreement. A merger is typically a friendly agreement between both companies. On the other hand, an acquisition can be hostile, with the acquiring company seeking to take over the acquired company against its will. However, an acquisition can still be a friendly and mutually beneficial, especially if the acquired company was looking to sell.
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9. Culture
One final difference to consider, when deciding between a merger or acquisition, is company culture. Culture impacts the overall functionality of the company and a positive culture can lead to growth in many areas of the business. When two companies merge, they have to work to develop a new company culture that combines the best of both businesses. This can be a challenging task – when companies with different cultures are joined, it can be difficult to make decisions quickly and, properly, and challenging to operate efficiently right away. In acquisition, the acquiring company typically imposes its culture on the subsidiary. However, the acquiring company must still take care and caution in ensuring a smooth integration and transition for all parties involved in order for the transaction to be a success.
