Mergers And Acquisitions Definition

When one company buys another and combines the two businesses, that’s called a merger. When one company takes over another but keeps the two separate, that’s an acquisition. Sometimes a merger or acquisition is done so that the buying company can get rid of competition, enter a new market, or add new products or services. Other times, it’s done to save money by consolidating operations.

In a merger, both companies agree to combine into one. Each company gives up something: usually its name, its headquarters, and its stock. In return, each company gets something: usually a seat on the board of directors of the new company and shares in the new company’s stock.

In an acquisition, only one company changes hands. The acquiring company buys the other company’s stock for cash or for shares in the acquiring company itself. The shareholders of the acquired company become shareholders of the acquiring company.