The terms ‘mergers’ and ‘acquisitions’ are batted about a lot together, but they have distinctive meanings. In the world of business, a merger involves two companies, usually pretty equal in size and scope that come together to form one business. In most cases this is done in order to achieve a profitable advantage in their field. An acquisition, on the other hand, involves a larger company that buys a smaller one and typically runs it as a subsidiary. In the case of the acquisition, the purchasing company is clearly the controlling party. Mergers, on the other hand, involve the creation of a new entity that combines the two relatively equal parties.
Why Do Businesses Merge?
Two businesses may come to the conclusion that a partnership under one company umbrella makes more fiscal sense than going it alone. In such cases, mergers can be a great idea. A larger company that combines two smaller ones may prove more competitive at a national or even an international level. Yet even from a local standpoint, a larger company may be more cost-effective to run than a smaller one. Business mergers happen for all sorts of reasons, but the underlying motivator is usually based on profitability.
Simplistically speaking, companies will generally acquire other companies in order to run them as subsidiaries or with the expectation to sell them piece-by-piece for increased profit. Acquisitions are often congenial in spite of what these definitions might imply. Such deals can create synergy as well as stability. In some cases, an acquisition is an excellent way for the smaller company to get rid of its debt while still continuing as a viable part of a thriving business.
Business brokers are equipped to assist buyers and sellers in this regard. Merger and acquisition firms feature brokers that can facilitate business deals of this nature. An M&A advisor, like a business broker, can assist in the negotiation process which can be lengthy and complex depending on the nature of the proposed transaction. The end result, of course, is a deal that leads to synergy between two parties and that is where merger and acquisition firms can truly shine.