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Mergers and Acquisitions: What’s the Difference?

Mergers and Acquisitions: What’s the Difference?

Photo Credit: TheTaxHaven

Mergers and acquisitions (M & A’s) are often considered to be the same thing and while the terms are similar in root meaning, the concepts are not synonymous with one another. Both mergers and acquisitions bring separate companies together to form a larger unit under one umbrella. Mergers and acquisitions operate on the idea that 1+1=3 and while we do realize that basic math is not logically supported in this algorithm, the solution is derived from the idea that two companies together are more valuable than the two companies separately in relation to share holder and market value.  Additionally, companies will often undergo a merger or an acquisition by purchasing other companies when an opportunity to create a larger, more fluid and efficient company presents itself.

While these two ideas have similarities and are directly related in meaning, their differences are distinct and the concepts are uniquely their own.

What is a merger? A merger occurs when two companies move forward as one cohesive unit. The new company is jointly owned and allows for a friendly comingling of the two companies. When a merger occurs, stocks from both groups are surrendered and stocks under the new company name are issued. Companies of similar size and power often participate in these mergers and when they do, it is commonly referred to as a “merger of equals.” In general, mergers are an amicable way for companies to join forces.

What is an acquisition? An acquisition is a full blown take over in which the purchasing company completely dissolves the purchased company and it no longer exists. An acquisition is not a joint owned venture but rather a single company owned endeavor. When an acquisition occurs, all stock of the purchased company is surrendered and converted to shares of stock of the purchasing company

Mergers and acquisitions occur frequently in the world of business and here at Stock Connections we understand that the concepts involved with both can be intimidating and challenging. We specialize in strategies on how to meet the complex requirements of mergers and acquisitions and encourage you to contact us with any questions you may have about a potential or currently occurring merger or acquisition.

 

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