Mergers & Acquisitions is the term generally applied to the corporate process of companies combining in one form or another. The terms can have distinct definitions (we give a brief sentence below, but for a more in-depth analysis please refer to our article The Differences Between Mergers and Acquisitions – Examples and Explanations), or can be used interchangedly.
- A merger occurs when two or more separate entities combine forces to create a new organization
- An acquisition is the takeover of one entity by another. The target may continue to exist as a subsidiary of the acquirer or may by fully absorbed into the acquirer
Other similar terms which are often used in a Mergers & Acquisitions context include takeover, deal and buyout. In addition to these terms, mergers and acquisitions can also cover the processes of a “demerger”, “spin off” or “spin-out”. These terms are used to indicate a corporate action where the parent company might split into different parts, generating a second (or third) company. This new entity may even become separately listed on a stock exchange. This was a common practice following the dismantling of the conglomerates in the 1980’s.
Payment is usually completed via one of the following methods, or a combination of both. Cash is normally used in acquisitions rather than mergers. Shareholders of the target company are removed from the investment landscape and the target firm comes under the control of the acquirer. Payment in the form of the acquiring company’s stock, issued to the shareholders of the acquired company at the exchange ratio described. The surviving company then continues with a combination of both sets of shareholders.
Additional Mergers & Acquisitions Reading
For further background on the evolution on the business of Mergers & Acquisitions see our reading list. We like M&A Titans: The Pioneers Who Shaped Wall Street’s Mergers and Acquisitions Industry by Brett Cole and especially Deals of the Century: Wall Street, Mergers, and the Making of Modern America by Charles R. Geisst. Also, see our M&A glossary entry for more information.
