What are Mergers and Acquisitions? Know the Difference, Forms, Types, and more.

Mergers describe a combination of two companies joining hands to move forward as a single new entity.

Whereas, Acquisition refers to a condition in which one company acquires a new business and establishes itself as the owner of it.

Acquisitions are slightly different from mergers. Moving forward, you will find more insights on both of these processes.

There are multiple forms of Mergers:

There are multiple formats of mergers that are being negotiated between companies. Here is a list of these forms.

1. Statutory Merger

A statutory merger happens when all the assets & liabilities of a target company are acquired by the purchaser. Example: Uber Eats was acquired by Zomato.

2. Subsidiary Merger

In a subsidiary merger, a company acquires another company with its assets and liabilities, but the acquired company will keep existing as a separate entity under the subsidiary firm. Example: Proctor & Gamble acquired Gillette.

P&G chose to acquire the goodwill of the targeted brand instead of making a replica of Gillette, which would have cost the same.

3. Consolidation Merger

A consolidation Merger occurs when two equally strong companies merge by ceasing their existence to create a new entity. Example: Citigroup dissolved itself to create Citicorp and Travelers Group.

Types of Mergers:

1. Horizontal Merger

When two companies in the same industry merge and create a new company to build dominance, increase market share, and reduce competition, it's called a horizontal merger. Example: Vodafone and Idea merged to form a new single entity, called Vi or Vodafone Idea Limited.

2. Vertical Merger

Vertical merger is a type of merger in which the manufacturer collaborates with the retailer to create one end of a supply chain without any middleman. Either one of them will move up or down to cooperate and work together. Example: Natural Ice-cream & its manufacturer.

3. Conglomerate

Conglomerate merger is an unrelated merger in which a company creates two or more companies that function in different fields of business, and all of them come under one parent company.

It also happens when a company has already expanded in its current business and reached economies of scale. So to make a profit, they use their funds to get into a new business. Example: Reliance Textiles, Reliance Oils, Reliance Telecommunication, and more. TATA Salt, Tata Motors, Tata Steel, Tanishq, Titan, and more.

What is Acquisition of assets?

This concept is practiced in the case of one company going through bankruptcy. In this special kind of merger, one company protects the other company from bankruptcy by acquiring some of its assets, and with that money, the bankrupted company pays back its debt. 

Example: Mukesh Ambani has acquired and paid the spectrum liabilities of Reliance communication (Anil Ambani).

What is Management Acquisition?

Management acquisition is facilitated by debt funding. In this acquisition, those companies who want to convert themselves from public limited to private limited go to big institutional investors or private banks to ask for a loan in exchange for their assets. They pay back the public debt and take their company private to reform their business and make it profitable for public listing on the stock. Example: Dell was taken private by Michael Dell when the company was not performing well.

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