Merger and Acquisition are not the same thing. M&A has been said so much that even though they are not the same thing, they are confused to be the same thing. There are other reasons why mergers and acquisitions are confusing because sometimes the companies that make these decisions deliberately do that.
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Definitions:
Merger means, two different companies form a new identity.
For acquisition, one company often smaller, gets consumed and does not exist after getting acquired.
Both of these strategies are corporate level strategies. Only the top level managers can make the decision to merge or acquire. Lower level managers just need to accept it.
Mergers:
Two companies, almost same sized, join together and turn into a new company. Almost everything about the old companies are still going to exist, but they are going to work together under a different name. and a new company stock will be introduced in the market.
The biggest one I can think of off the top of my head is exxonmobil. I have to say that if you go on google and look for biggest mergers in history, you might find something bigger than this, but this was the most successful one and this still exists to this day.
The deal was made in 1999. 21 years ago.
Acquisition:
The textbook explanation would be that a bigger company is going to buy a smaller company for various reasons. The smaller company will cease to exist and the bigger company will acquire everything they had.
Acquisition happens for many reasons. The bigger company might want to get rid of competition, the acquirer might want the assets of the smaller company. They might want it for the people working there. They might need a little help reaching the economies of scale.
Nowadays, most of the times, companies acquire other companies for the brand value of that name.
Example:
Amazon acquired twitch. It is not called amazon streaming services. It is still twitch. Its parent company is amazon. Similarly, amazon bought whole foods. So, iis it amazon foods. No. it is whole foods. You can just get 10% discount on any item if you are a amazon prime user that’s it.
Disney bought marvel. Almost everybody knows that Disney is a part of marvel. It is called Disney marvel. But, the name, marvel did not get erased did it. Of course not. Disney most likely bought marvel because of its already existing avid fan base. Disney also bought some other companies as well.
Now, the thing about the confusion. The general notion of merger and acquisition is that mergers are friendly and acquisitions are forceful. The company getting acquired does not want to get acquired, but the bigger company is much more powerful and buys them out.
A purchasing is often classified as merger and acquisition based on whether the deal is hostile or friendly.
There is the problem. It is very rare for two companies that are pretty much similar getting together and creating a new entity. So, these terms have become interchanged over the years.
Now, if your professor asks you a question, about mergers and acquisitions, you can get away with saying that merger is where two company becomes one and takes a new name. and acquisition is where one company absorbs the other.
If you are facing an interview and this question is asked. You can still get away with saying that, but you might need to also say why mergers happen and why acquisitions happen and all that.
But, if you are a CEO. You have to think about a lot of other things as well.
Now, before acquiring a company, you need to think about the overall image of your company and the overall image of the company of the company you are buying.
Disney bought out Pixar animations. The overall image of these two companies do not conflict that much. Everything is alright.
Disney bought Marvel. You can say that marvel and Disneys overall image clash. You can be partially right.
Marvel is not that edgy or violent. But, they still have adult theme in their movies. Disney bought marvel and did not change that much from the movies. They were still successful. If Disney decide to change a lot of the aspects of the franchise that is marvel, they would be risking the millions of fans of these beloved characters.
Thank You so much for watching this video. With this video, I am glad to say that I have followed through my plan to make a complete course on strategic management.
Timestamps:
Intro - 0:00
Definitions - 0:23
Mergers - 1:15
Acquisitions - 2:06
First Example - 3:09
Second Example - 3:38
Confusion - 4:08
Three Different Situation - 5:08
Things to Consider before M/A - 6:03
Bonus - 8:18
Conclusion of Strategic Management Series - 10:15
Notice - 10:56
