Despite belonging to the same universe and being directly linked when it comes to two companies that intend to unify their operations, the terms merger and acquisition have specific differences that must be considered within the companies’ expansion strategy.
By understanding that an M&A operation is the ideal way for a business to take the next step in its growth plan, it is worth understanding the nuances that involve these two ends of the process and verifying which is the most appropriate. Reading this article can help with this decision.
Merger: when two companies become one.
Before going more specifically into the issues that differentiate a merger from an acquisition, we need to return to the basic principle and understand the meaning of these terms that are so present in the life of large organizations.
When two companies understand that the best path for growth and expansion is for the companies to come together to conceive a new one, what we call a merger takes place.
The reasons that lead to this union have factors and motivations that may be linked to the need to add more products or services to the portfolio, expand market adherence or even momentary business strategies, such as the launch of a specific action with characteristics seasonal.
Mergers are divided into horizontal and vertical. The first occurs when the two companies carrying out the M&A operation belong to the same market niche. In the second case, the transacted companies even find themselves in a common segment, but with different production lines. For example: a clothing factory that joins another shoe factory and generate a new large industry contemplating these two fronts, with broader operations.
There is also the congeneric merger, in which businesses from the same segment, but offering different products, unite and, finally, the conglomerates, which form business groups from the combination of organizations without any similarity in what they offer, but with the similar objective of increasing its marketing reach.
Acquisition: when a company buys another company.
As the name implies, an operation characterized by the total or partial purchase of shares in one company by another is classified as an acquisition, as long as the acquiring organization has more than 50% of the share of that pie and starts to control the directive decisions.
It is quite common, for example, for a business with a greater capital contribution and better positioned in the market to acquire another one that is less robust from a financial point of view and that has not yet achieved the desired growth.
That small grocery store in your neighborhood, which has gradually grown and gained local recognition, can attract the attention of a large retail group, for example, which decides to buy most of its shareholdings and bring a new perspective of expansion to that establishment.
Another situation that usually sets the stage for an acquisition to take place is when a particular company is experiencing serious financial difficulties and sees a possible sale as a way out so that the losses are remedied without the company having to stop operating.
Even after the consolidation of the negotiation, the former owners may continue to be part of the organization’s corporate structure, however, if their holdings are a minority, the final word on strategic and business decisions will be up to those who acquired it, as well as the conduction of all processes operational.
An acquisition can be amicable, especially when there is a consensus among the main members of the company to be sold that this is really the way to go. However, this operation does not always occur completely smoothly, especially when there is a difference of opinion about the transaction.
Mergers and acquisitions: they look alike, but they are not the same.
Before bringing the main differences between mergers and acquisitions, we need to highlight a point where they are on a similar level: both transactions are on the rise and have been gaining more and more strength in Brazil. In 2021, for example, M&A operations moved more than 300 billion reais and helped build the biggest record in the last 10 years.
Even in this context in which these negotiations are even more present in the country’s business routine, it is necessary to understand the aspects that make a merger or acquisition not necessarily the same, despite the evident interconnection between them.
The most dissonant feature already begins with the way transactions are carried out: while in mergers there is practically a co-creation of a new company from the merging of two others, in acquisitions one organization takes control of another in its hands , after buying the majority of its shares.
It is worth mentioning that, as a rule, mergers are more likely to happen between businesses belonging to similar segments , such as the union of two food industries, whose product portfolio of one of them complements the other. This particularity is not always present in acquisitions that may occur between completely opposite companies.
Another difference is directly related to the amount invested to carry out the negotiations. Obviously, the purchase of another company demands a much greater value than when two others decide to unite their operations, something that can be done through an agreement involving shareholding shares. Therefore, an acquisition tends to be much more expensive than a merger.
Although acquisitions occur more frequently, the viability of merger processes, added to their cost-effectiveness, cannot be ruled out by companies that wish to increase their market share or work with new products and services.
To be sure which one best applies to your project and your growth strategy, nothing more recommended than looking for companies with experience in M&A to assist you in every step of the process and offer the support you need so that the transactions present the desired result and its objectives are achieved.
