The terms merger and acquisition are wedded together like other common word combinations such as salt and pepper or black and white. However, though they are often used interchangeably, they don’t mean the exact same things. A merger happens when two or more than two companies fuse together to form a new company. The merger that takes place is based on a mutual decision between the two companies. Often these merged companies are approximately the same size, and they may even adopt a new name to define the new business entity. Mergers occur when companies are combined. Two of the most common kinds of mergers are:
- Horizontal Merger: This kind of merger is when there is a consolidation of firms that are in the same industry.
- Vertical Merger: A vertical merger is when two or more of the combined companies are in different stages in the supply-chain process for the same good or service.
Acquisitions occur when one company “acquires” another. A new company is not created during an acquisition. The smaller company is typically consumed by the larger one. An acquisition is sometimes considered a “takeover” even if it isn’t always called that by the parties involved. Hostile takeovers are acquisitions that take place when one company takes over control of another without the agreement of the firm that is acquired.