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What is the difference between merger and acquisition?

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Quick Answer

According to AAMS Merger, the distinction between mergers and acquisitions rests in the way the transaction is financed. A merger is characterized by two companies of comparable size deciding to become one entity. In an acquisition, one company buys another seeking a strategic advantage in the marketplace.

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Full Answer

Based on the guidelines of AAMS Merger, the primary difference between mergers and acquisitions consists in how the transaction is funded. A merger traditionally occurs when one company combines with another firm of similar size in an effort to gain an advantage in its respected marketplace. After this transaction occurs, a new single company is formed that is separately operated and owned. Often, both firms' stocks are dissolved and new equities are dispersed in their place.

In contrast, an acquisition occurs when one company purchases another entity to further assert itself in the marketplace, according to AAMS Merger. With this transaction, the larger company retains its dominant status while the company acquired is absorbed into its infrastructure. Shareholders of the small company are given stock in the larger company and/or cash as compensation for their equity in the firm purchased. The name of the business purchased is dissolved as it becomes affiliated with the company that buys it.

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