Difference Between Merger, Acquisition, and Amalgamation

When companies decide to join forces, they may do so through a merger, acquisition, or amalgamation. While all three result in businesses coming together, each process works differently. Let’s take a closer look at what these terms mean and how they vary.

What is a Merger?

A merger is when two companies combine to form a new single entity. The key point is that both companies agree to this arrangement, usually seeing it as a positive move to enhance their operations. In most cases, the original companies cease to exist, and the newly merged company takes over.

For instance, if Company A merges with Company B, the result may be a new entity called Company C, with both original companies disappearing.

Types of Mergers:

• Horizontal Merger: This happens when two companies in the same industry come together (e.g., two retail businesses merging).
• Vertical Merger: This is when a company merges with another business at a different level in the production process, such as a manufacturer merging with a supplier.
• Conglomerate Merger: Two companies from unrelated industries join forces.

What is an Acquisition?

An acquisition takes place when one company buys another. In this situation, the acquiring company (often larger) gains full control over the purchased company. The acquired company may continue to operate under its own brand or be absorbed entirely into the acquiring company.

For example, Company A could acquire Company B. Depending on the structure of the deal, Company B might keep its brand name or be folded into Company A’s operations. Unlike mergers, acquisitions don’t always involve both parties agreeing willingly; some acquisitions are hostile.

Key Characteristics of Acquisitions:

• The acquiring company takes full control.
• The acquired company may lose its brand identity.
• Acquisitions can be friendly (mutual agreement) or hostile (one party resists the deal).

What is Amalgamation?

Amalgamation is when two or more companies combine to form a completely new entity. Unlike mergers, where one company often survives, amalgamation dissolves both (or all) original companies. The new company takes over the assets and liabilities of all the amalgamated firms.

This process is often seen in certain regions, like India, and is treated as a formal legal procedure under specific regulations.

Key Aspects of Amalgamation:

• All original companies are dissolved.
• A new company is created.
• All assets and liabilities are transferred to the new company.

Key Differences Between Merger, Acquisition, and Amalgamation

Why Do Companies Merge, Acquire, or Amalgamate?

1. Expand Market Reach: Combining forces allows companies to enter new markets or regions more easily.
2. Reduce Costs: Businesses can streamline operations, cut redundant functions, and save money through these processes.
3. Improve Competitiveness: Larger, combined entities can often compete more effectively on a global scale.
4. Access Resources: A merger or acquisition can help companies tap into new technology, expertise, or intellectual property.

Final Thoughts:

Mergers, acquisitions, and amalgamations are all ways businesses can combine, but the outcomes are different. In a merger, two companies agree to come together, usually to create something stronger. An acquisition involves one company taking over another. Amalgamation results in the formation of a brand-new company, with all previous companies ceasing to exist. Knowing the differences is crucial for companies planning their future growth and strategies.