M&A Merger and acquisition of a company - what are the differences between these processes?

In short:

• Mergers and acquisitions allow companies to combine capital, resources and experience to grow faster and more effectively.
• In the case of a merger, two or more companies are fused together, while an acquisition means gaining control over another company.
• Every merger or acquisition transaction requires preparation of strategy, Due Diligence analysis and formal corporate approvals.

A merger is a combination of two or more companies, resulting in the creation of a new entity or the acquisition of assets by one of the companies.

Typically, there are two types of mergers:

• Merger by fusion, when all assets of the company being acquired are transferred to the acquiring company,
• Merger by establishment of a new company, when the assets of all merging companies are transferred to the newly established capital company.

In practice, business mergers allow for the pooling of capital, resources, and expertise of several companies to strengthen their market position, reduce costs, or enter new markets.

Every merger of commercial companies requires the preparation of a merger plan and the implementation of a procedure in compliance with applicable regulations, as well as consideration of the legal and capital aspects of the entire process.

A business acquisition involves gaining control of another entity, typically through the acquisition of shares or stock. Unlike a merger, where companies merge, in the case of an acquisition, an existing entity – the acquiring company – acquires all or part of the assets of the target company and takes over its management.

A company acquisition can be capital-based (purchasing a majority of shares) or asset-based (transferring an organized part of the enterprise). Various models are used in practice, for example, an acquisition within the same industry (consolidation) to increase market share, or a complementary acquisition to expand the business with new products or services.

From a legal perspective, the acquisition of a company requires the preparation of an agreement and corporate approvals, and in the case of large transactions, often also approval from an office of competition and consumer protection. As a result, the acquiring company gains full control over the acquired company and can integrate its operations into its own business structure. Technologies play a key role in modern mergers and acquisitions processes, including Virtual Data Rooms (VDRs), which ensure security and control over documentation during the Due Diligence process.

So, although merger and acquisition of a company often appear together in business parlance, in reality they differ in scope and legal effects.

A merger involves two or more companies combining their assets and capital, creating a new entity or expanding an existing one. Shareholders of the merging companies receive shares in the new company, and the entire process leads to the creation of a single, shared economic entity.

In turn, an acquisition means that the acquiring company acquires shares or assets of another company and gains control over it, without creating a new entity. Shareholders of the acquired company may receive shares, stock, or cash compensation, and upon completion of the process, all assets of the acquired company are transferred to the acquiring entity.

In short, a merger involves combining companies, while an acquisition involves the takeover of one company by another. In both cases, the goal is development, expansion, and increased market value, but the legal path and method of integrating the companies differ significantly.

Companies (buyers) most often choose mergers or acquisitions when they want to accelerate growth and strengthen their market position. Such capital transactions allow them to achieve goals that would be difficult to achieve on their own.

The most common themes are:

1. Expansion into new markets through a merger with a local entity, which facilitates access to new customers and distribution channels.
2. Cost reduction by combining resources and organizational structures, which allows for increased efficiency and reduced expenses.
3. Strengthening competitiveness by merging two companies operating in the same industry, thereby increasing market share.
4. Technological and product development. By acquiring another company, the company can implement innovations more quickly and expand its offerings.
5. Diversification of business activities through conglomerate mergers of companies, reducing the risk of dependence on one sector.

For acquired companies, a merger or acquisition most often means an influx of capital, access to know-how and new markets, and often provides a rescue from bankruptcy. Regardless of the purpose, mergers and acquisitions are today one of the most important tools for strategic business development, allowing companies to build scale, increase value, and strengthen their competitive position in the long term.

What is a business merger?

A business merger involves the combination of two or more companies, resulting in the creation of a new entity or the acquisition of the assets of one of the companies.

What is a business acquisition?

This is a situation in which all assets of the company being acquired are transferred to the acquiring company, and the shareholders of the company being acquired are issued shares or stocks in the acquiring company.

What is the difference between a merger and an acquisition?

In the case of a merger, the assets and capital of several companies are combined, while an acquisition involves the acquisition of control over another enterprise by the acquiring company, without creating a new entity.

What types of mergers are there?

There are three main types of mergers: horizontal, which combines companies from the same industry; vertical, which integrates companies operating at different stages of production; and conglomerate, which combines companies from different industries.

How does the merger or acquisition process work?

A typical process includes strategy development, due diligence, negotiations, agreeing on transaction terms, obtaining corporate approvals, and registration in the court register. In international transactions, notification to an office of competition and consumer protection or international authority may be required.

What are the benefits of mergers and acquisitions?

Most often, these include expansion into new markets, cost reduction, increased market share, access to new technologies and better use of capital and resources.

What are the risks associated with a merger or acquisition?

The main ones include integration problems, organizational differences between teams, incorrect valuation of the acquired company, and legal or regulatory risks.

How does technology support the merger and acquisition process?

Modern transactions utilize a Virtual Data Room (VDR), a secure online environment for document exchange and data management. Tools like Fordata accelerate due diligence and provide complete control over information access.