What are Mergers and Acquisitions (M&A)?

by Investing School on February 4, 2011

The term “mergers and acquisitions,” also known as M&A, refers to the aspect of business management that deals with purchasing, selling or combining different companies. These processes can assist or even finance the growth of a company without the necessity of creating another business entity entirely. The two terms, merger and acquisition are not exactly synonymous – they have different meanings with regard to these business processes.

An acquisition occurs when one company takes another company over, establishing itself as the new owner of the purchased organization. From a legal vantage point, the purchased company is no longer in existence. The buying company has completely overshadowed the purchased business, and only the buyer’s stock continues to be on the markets.

On the other hand, a merger is when two companies decide to move into the future as a unified new company, as opposed to staying individually operated. A merger like this one is known as a “merger of equals,” because the companies involved are usually about the same in size. The stocks from both of the merging companies must be surrendered, and stock from the newly merged company is issued instead.

However, because being purchased as an acquisition tends to be viewed in a negative light, companies will often describe acquisitions as mergers to make the deal more enticing to stockholders, managers, and the media. In addition, if a merger deal is more of a hostile takeover, even a genuine merger will be considered an acquisition in all practical respects.

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