The term “merger” literally means merging of two organizations into one; term “acquisition” means to takeover or something acquiring. However, despite the difference of the two terms, the two terms are sometimes combined and referred to as M&A. It has been known that the combination of merger and acquisition or also known as M&A means that the value of shareholder is much greater than the value of the two companies when their sum is combined. Even if for a fact that the terms merger and acquisition are used alternatively, the two terms are still different from each other in terms of their meaning.
An acquisition means that, it is buying one organization by another. The approach of an acquisition can either be friendly or harsh. It is very important for you to know that in a hostile approach, the bidder will still continue to seek it even if the company or the target has already disagreed, while in a friendly approach of acquisition, then the executives of a company would prefer to continue the negotiation. It has also been known that those large companies take over those smaller companies due to different reasons. However in some situations a smaller company might overtake the larger one and only keeping its name for the new firm which is the result of acquisition. The acquisition where the smaller companies overtake the bigger ones are called as the reverse merger.
However, there are also times where the two organizations would agree on a decision of becoming one, and it is called as a mutual decision between the two organizations. In a merger, organizations agree to be as one organization and continue as one rather than as two separate organizations. As a result the newly merged firm’s stocks are issued and stocks of old companies (the stocks of two companies before merging) are surrendered. The merger can be horizontal merger, conglomerate (or congeneric) merger or vertical merger; it depends on the merging companies nature. If the two companies which have decided on merging compete in same product line it is said to be horizontal merging. However, it can be referred to as a vertical merger if the two companies in different product line have agreed on a merger wherein the products can enhance the value of the company. Finally, you can call a merger as a conglomerate merger if the two companies have different product lines but still decides to merge with each other. It can also be called as a consolidation or a purchase merger.