By CFO Brew Staff
less than 3 min read
Definition:
Salt and pepper. Fire and ice. Exxon and Mobil. Disney and Pixar. Sometimes, things just work better together, or that’s at least some of the logic driving mergers and acquisitions—business transactions in which companies’ assets (or the companies themselves) are consolidated.
M&A efforts have the potential to expand a company’s consumer base, eliminate or reduce competition, and drive efficiency. Companies can combine their assets with others using cash, stock, or debt—or sometimes a combination. While the word “acquisitions” is probably on the tip of your tongue as soon as you hear “mergers,” it’s important to distinguish between the M and the A of M&A.
- What’s a merger? Think of mergers like SpongeBob and Patrick, or macaroni and its close friend, cheese. One without the other? It just doesn’t work. Mergers unite two companies, ultimately transforming the two entities into a single unit.
- What are some common merger types? One is a horizontal merger, which blends two companies that directly compete. There are also vertical mergers, like when a company and its supplier team up. Another common type of merger is the congeneric merger, when two companies with a common consumer base yet different product offerings join forces.
- So, what are acquisitions? Acquisitions, on the other hand, more closely resemble the Barbie and Ken school of coupledom. She’s everything. He’s just Ken. Unlike mergers, there’s typically a clearer power dynamic driving acquisitions.
- What’s the difference between a merger and an acquisition? One of the biggest factors differentiating an acquisition from a merger is ownership: Upon completion, acquisitions typically involve the acquiring company gaining a majority stake in the other company.
- How do companies benefit from acquisitions? Often, acquiring a company helps one firm expand into a new industry, like when Amazon’s acquisition of Whole Foods allowed the tech giant to broaden its grocery reach.
