The Distinction Between Mergers And Acquisitions

Considering that logical errors are quite common in the claims of the average person, there is not a single discipline whose components have been able to completely avoid misrepresentation.  Just as there are misconceptions about various concepts within theology, science, or mathematics, there are misconceptions about business concepts.  Businesspersons themselves might perpetuate some of these conceptual mistakes, even if they are experienced when it comes to making typical business decisions.  After all, that a person has experience in a certain position, even if that experience is very thorough, does not guarantee that they are sound thinkers.

One business concept which is surrounded by some degree of confusion is the difference between a merger and an acquisition.  Some people rightly treat them as distinct events, while others regard them as mostly or entirely synonymous.  While the difference is one of degree, the two are far from being interchangeable terms, as they refer to concepts that, though related, involve vastly differing power relationships between two firms.  In the case of the former, the power of each firm is fairly comparable; in the case of the latter, one firm has the upper hand, and it is obvious which firm is in this position.

A merger is the uniting of two separate firms in a someowhat "even" way.  It is very difficult for a merger to be exactly 50-50: since there are so many variables that could affect the power of a company's culture, reputation, and assets, it is more likely that two given companies will integrate on at least slightly unequal terms.  However, this does not mean that there is a massive difference in the power that two firms bring to a merger; it only means that an exact split of power is improbable.

In contrast to a merger, an acquisition clearly allows one party to hold a great deal of power over the other.  An acquisition involves the complete absorption of one firm by another, whether the acquisition is hostile (against the wishes of the target firm) or not.  Unneeded or difficult workers in the acquired company can be removed, and subordinating one corporate culture to the other could prove to be thoroughly challenging.  Given the potentially intrusive aspects of an acquisition, there is not only a difference between a merger and an acquisition in terms of the comparative power of both firms involved, but also a difference in how welcomed the transition is.

Though a merger and an acquisition share some common ground, the commonality being that both of them involve two firms becoming one collective unit, they are not synonymous.  Nevertheless, some people continue to insist that they are the same thing after all.  Since I have had business professors who repeat this myth, I wanted to emphasize the distinction between the two--when someone makes even relatively minor logical mistakes, they have laid the foundation for the acceptance of larger ones.