Mergers and Acquisitions (M&A) is a type of corporate strategy, which stands for all operations related to transfer of property rights in companies, including formation and restructuring of companies.

Many people refer to mergers and acquisitions as though they were one thing (M&A) and use the words interchangeably, when in fact; they are two distinct features of corporate takeover.

  • Merger

By definition, a merger takes place when two equal companies join forces and create a new entity. Stock for both of the companies is surrendered, and new stock is issued for the newly created company. Typically the company is renamed; often a combination of the two previous companies, but in some way there is a distinction that the two companies have united.

A true merger rarely happens. In most cases, one company will buy out another company, but will allow the purchased company to refer to it as a merger to avoid the negative connotations often associated with a buy out. If the buyout is friendly, the CEOs of both companies will refer to the purchase as a merger – indicating the willingness of both companies to work together.

  • Acquisition

Similar to a merger, an acquisition always results in a new company being formed out of two separate entities. The process of that unification process is slightly different for an acquisition. Unlike a merger, an acquisition is always done by the purchase of one company by another. The buyout may be friendly and smoothly done, but there is no release of new stock, and the buying company retains its name. The buyout is sometimes considered hostile, such as when a smaller company does not wish to be purchased but is taken over through the purchase of stock shares.

The joining of two companies does not always result in a successful transition into one united company. Unless careful planning and strategizing is put into place, the resulting corporation may be in more of a chaos than before. Key company leaders must set the stage for ensuring that the goals of the new company are clearly communicated to employees and are being evaluated for success.

The potential benefits to both companies can include greater profits, a greater share of the market and an increased visibility with customers. It is up to the leadership to ensure that the benefits are realized after a merger or acquisition takes place.