Companies evolve, markets shift and strategies adapt to these changing factors. Businesses may respond to such change or proactively seek growth through mergers and acquisitions.
Mergers and acquisitions are common business activities, yet they’re often misunderstood. Understanding the differences and similarities between them is beneficial if your company is ever in a position where one becomes advantageous, necessary or otherwise advisable.
What are mergers?
In its simplest form, a merger happens when two companies combine to form a new entity. The goal is often mutual benefit. Both businesses aim to achieve something they couldn’t accomplish individually. During a merger of a publicly traded company, shareholders of the merging companies often receive shares in the new entity.
What are acquisitions?
Acquisitions, on the other hand, involve one company purchasing another. The acquired company either becomes a part of the acquiring company or continues to operate as a separate entity. The key difference is control. In an acquisition, the acquiring company has full control over the acquired company. It makes all the decisions, from staffing to operations, without requiring approval from the acquired company.
The strategic reasoning behind these moves
Mergers and acquisitions are typically driven by a desire to grow quickly, enter new markets or acquire specific resources. It’s often quicker and less risky to acquire or merge with an existing company than to build from scratch. That’s why established companies frequently go this route to fend off competitors or capitalize on new opportunities.
Impact on employees
For employees, mergers and acquisitions can be a time of uncertainty and change. Jobs may be lost or roles may change as the companies integrate. On the flip side, these moves can also lead to new opportunities and growth within an organization. It’s essential for employees to stay adaptable and keep an eye on the bigger picture as these processes unfold.
Mergers and acquisitions are complex processes involving many variables. There’s due diligence, negotiation and a myriad of legal and financial details to sort out. Protecting the company you’re responsible for may require you to get assistance from someone familiar with these matters.