What is the difference between Merger, Acquisition, and Amalgamation?

If you are struggling to expand your business, then you must have come across the terminologies of merger, acquisition, and amalgamation. Often, these terms get misinterpreted as one, despite sharing huge dissimilarities. To have a clear understanding of their functions, one needs to draw an extensive comparison and highlight the difference between mergers, amalgamation, and acquisition. But before hopping on the differences directly, it’s necessary to gain the basic knowledge of these concepts individually.   

What is a Merger?

The legal definition of a merger states that “a merger requires the consolidation of two companies into a single entity with a new ownership and management structure.” A merger helps companies to enlarge their reach, obtain increased market shares, and diversify their services.

Reasons for Adopting the Merger

Apart from reinforcing the business, a merger provides several benefits. Some of its perks are listed below:

• Elimination of Operating Inefficiency
  One of the primary benefits of merging two or more companies is that it increases the number of operating economies. Under the supervision of superior management, the possibility of any duplication in accounting, marketing, or purchasing gets minimized.

• Synergy
  Synergy is the higher combined value of merged companies in contrast to the total sum values of individual firms. When a company having few resources and operating heads merges with another company possessing plenty of resources, it results in a more potent firm than a single entity. 

• Enlarge Diversification
  Every company excels in different domains; the merger helps companies to expand their realm with diversification. It lessens the risk factor for the individual organization that singlehandedly tries its hands in a new field.  Since both the companies hold competency in diverse areas, they can efficiently deal with any obstacle once merged.

• Optimum Financial Planning
  The newly merged company has the leverage to perform optimum utilization of resources. With the availability of abundant collective finances, the merged company can create various innovative plans to use it effectively. Thus improves the financial position of the company as a whole.

What is an Acquisition?

An acquisition refers to a corporate transaction wherein a company purchases a portion or entire shares/assets of another company.  The acquisition is ideally processed to take charge of the target company’s strengths and seize synergies.  

During the execution of such corporate transaction, the acquiring company buys the target company’s shares or assets, which provides a sense of authority to the acquiring firm to make any decisions in regards of acquired assets without needing the consent of shareholders from the target company.

Benefits of Acquisition

• Access to Capital
  By embracing acquisition, one gets access to the capital of a larger company.  Usually, Entrepreneurs owning small businesses face the trouble of investing their own money to sustain growth. Acquisition facilitates a handsome amount of capital, enabling the required funds to Entrepreneurs without the need for descending their pockets.

• Larger Pool of New Talent
  The acquisition provides many benefits; one of them involves access to more competent and skilled resources , which helps to boost revenues and ultimately improving the growth scale of the company.
• Improved Market Power
  One has to be ahead of his competitors to secure a supreme position in the market, having said that, an acquisition speedily helps to escalate the market share of a company. Moreover, it reduces the competition’s progress. To survive in an extremely competitive market, one needs to adopt a smart strategy like acquisition, which will not only help your company in the growth aspect but also decreases the capacity of competitors.

• Lessens Entry Restrictions
  If one acquires the shares of a progressive company, then it eases its way to diverse product lines and new markets instantly with an esteemed brand having a client base already. Companies can overcome the strict market barriers through acquisition.  The process of acquisition has simplified the market entry for small companies who were earlier compelled to bear considerable expenses in the development of new products, market research, and investing much time to form an ample client base.

What is Amalgamation?

An amalgamation is a type of merger in which two or more companies join their businesses to create an entirely new company/entity. It is an adequate arrangement of two or more companies that operates the same industry; thus; amalgamation plays a vital role in reducing the operational cost.

Advantages of Amalgamation

Let’s have a look at the key benefits of amalgamation:

• Operating Economics
  The operating economics refers to the expenses associated with day to day activities of the business. When two companies amalgamate, their business operation expands, which further assists them to optimize the economies of a larger entity’s production and distribution.  Also, it decreases various internal expenses of the company, like managerial cost, operating cost, etc. 

• Financial Perks
  The amalgamated company earns an array of financial benefits such as tax benefits specifically when a company loss making company amalgamates with a profit making company.

• Speedy Growth
  As per a report, an amalgamated company grows at a faster pace than an individual company. The central reasons behind the rapid growth of amalgamated companies are sufficient ability to face competition, can leverage joint expansion plans, and share past experiences when needed.

• Access to Effectual Managerial
  There is no shortcut to success; one requires the right guidance and managerial skills to obtain the desired outcome.  An amalgamated company can improve its managerial effectiveness by replacing the inefficient staff with a competent group of managers.  They have the liberty to hire skilled professionals with enough experience in the concerned industry. 

Now that you have attained enough knowledge of merger, acquisition, and amalgamation, so it’s time to resolve the central query which revolves around these terms i.e., the difference between a merger, acquisition, and amalgamation.

Key Differences between Merger, Acquisition, and Amalgamation