What are Mergers and Acquisitions?

In the world of business, it is not unusual for various industries to undergo a series of mergers and acquisitions as the business landscape undergoes some type of change. Often, an acquisition or merger is undertaken for the purpose of combining resources in order to provide a higher quality of goods and services to consumers. However, there is a significant difference between a merger and an acquisition.

Mergers and acquisitions, or M&A as they are also known, are both means by which two or more business entities become one larger entity. In the case of a merger, this is often a process that is entered into after a long period of evaluation on the part of the respective officers and owners of the companies involved. When the idea is to merge companies together, there is usually a sense that all parties involved in the creation of the new and larger entity are equals in the process and will be treated as such as the structure of the new entity is planned and put into operation.

With an acquisition, the scenario is a little different. When one company decides to acquire another company, the process usually involves a buyout or purchase of that business. There are not necessarily any plans to continue all the operations of the acquired company; often the resources of the acquisition are absorbed into the resources held by the purchasing company while the acquired business simple ceases to exist.

Mergers and acquisitions also tend to differ in one other important aspect. While mergers are generally situations where all parties want the combination of companies to take place, that is not necessarily the case with an acquisition. Hostile takeovers are an example of an acquisition that is not accomplished with the enthusiastic support of the officers and shareholders of the acquired business. At best, there may be a sense of grudging acceptance that the takeover will occur whether or not shareholders and officers want the acquisition.

It is not unusual for many different industries to go through periods where mergers and acquisitions are the norm. During the 1990’s, local and national teleconferencing companies often merged in order to provide a broader suite of services to their customers. The textile industry has seen its share of both mergers and acquisitions, especially during the last thirty years of the 20th century. Even industries such as food service and retail go through periods where competitors merge in order to secure a major share of the consumer market, or where companies are acquired in order to gain access to assets while also minimizing the number of direct competitors within the industry.