The terms ‘merger’ and ‘acquisition’ are often used interchangeably, but the truth is that there are some key distinctions that separate the two activities. Yes –ultimately they both refer to a business changing ownership, and the catch-all term ‘mergers and acquisitions’ is used to describe this kind of transactional corporate restructuring, but the specific details of the change are what is important here.

Here is our guide to the difference between a merger and an acquisition.

Mergers vs. Acquisitions- What’s the Difference?

Legal definitions

In legal terms, a merger is a consolidation of businesses. After the completion of a merger, a new entity is created, which can often incorporate leadership elements from both former companies –so the new organization might see the CEO of one company retain that position while the CEO of the other takes a role as CFO, for example.

Mergers are typically perceived as being more amicable, as opposed to the sense of hostility which can accompany an acquisition. A merger is usually the result of a mutual decision, and the resulting entity will retain a lot of the existing leadership team, personnel, equipment, processes, and suppliers –the benefits come from a sharing of information and resources and an increased market share.
An acquisition, on the other hand, does not see the creation of a new entity: instead, the (usually) smaller of the companies is subsumed into the acquiring company, and as a business, the target ceases to exist. This can be aggressive and unwanted by the target –for example, if an investor buys more than 50% of the publicly traded stock of a company, then they are the de facto decision-makers for that company without ever having engaged with the current leadership.
Acquisitions do not always have to be hostile, however. In cases where the owner of a business wants to sell up and leave the company, looking for a company or person to acquire the company can be the best route to that goal.

Why the confusion?

There are two main reasons for the confusion surrounding these terms. Firstly, ‘mergers and acquisitions’ is a commonly used phrase, which leads people to believe that the two are synonymous. Secondly, a company engaged in potentially hostile acquisitions will often substitute the term ‘merger’ to soften the public perception of the activity –even though it is not strictly speaking the correct word to use.

Next steps

If your business growth strategy incorporates merger or acquisition activity, then you should engage the services of an established M&A consulting firm. Pinnacle Pharmacy Group has been working in the business transaction space specifically for pharmacy and digital health businesses for many years and can help you to define your plans and create a roadmap to help you achieve your goals.