Mergers and acquisitions (M&A) are transactions in which the ownership

of companies, other business organizations or their operating units are transferred or combined.
As an aspect of strategic management, M&A can allow enterprises to grow, shrink, change the
nature of their business or improve their competitive position.
From a legal point of view, a merger is a legal consolidation of two entities into one
entity, whereas an acquisition occurs when one entity takes ownership of another
entity's stock, equity interests or assets. From a commercial and economic point of view, both
types of transactions generally result in the consolidation of assets and liabilities under one
entity, and the distinction between a "merger" and an "acquisition" is less clear. A transaction
legally structured as a merger may have the effect of placing one party's business under the
indirect ownership of the other party's shareholders, while a transaction legally structured as an
acquisition may give each party's shareholders partial ownership and control of the combined
enterprise. A deal may be euphemistically called a "merger of equals" if both CEOs agree that
joining together is in the best interest of both of their companies, while when the deal is
unfriendly (that is, when the management of the target company opposes the deal) it may be
regarded as an "acquisition".
An acquisition or takeover is the purchase of one business or company by another
company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets
or ownership equity of the acquired entity. Consolidation occurs when two companies combine
to form a new enterprise altogether, and neither of the previous companies remains
independently. Acquisitions are divided into "private" and "public" acquisitions, depending on
whether the acquiree or merging company (also termed a target) is or is not listed on a public
stock market. Some public companies rely on acquisitions as an important value creation
strategy.[2] An additional dimension or categorization consists of whether an acquisition
is friendly or hostile.
Whether a purchase is perceived as being a "friendly" one or a "hostile" depends
significantly on how the proposed acquisition is communicated to and perceived by the target
company's board of directors, employees and shareholders. It is normal for M&A deal
communications to take place in a so-called "confidentiality bubble" wherein the flow of
information is restricted pursuant to confidentiality agreements.[5] In the case of a friendly
transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board
and/or management of the target is unwilling to be bought or the target's board has no prior
knowledge of the offer. Hostile acquisitions can, and often do, ultimately become "friendly", as
the acquiror secures endorsement of the transaction from the board of the acquiree company.
This usually requires an improvement in the terms of the offer and/or through negotiation.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however,
a smaller firm will acquire management control of a larger and/or longer-established company
and retain the name of the latter for the post-acquisition combined entity. This is known as
a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that
enables a private company to be publicly listed in a relatively short time frame. A reverse merger
occurs when a privately held company (often one that has strong prospects and is eager to raise
financing) buys a publicly listed shell company, usually one with no business and limited assets.
The combined evidence suggests that the shareholders of acquired firms realize significant
positive "abnormal returns" while shareholders of the acquiring company are most likely to
experience a negative wealth effect.[6] The overall net effect of M&A transactions appears to be
positive: almost all studies report positive returns for the investors in the combined buyer and
target firms. This implies that M&A creates economic value, presumably by transferring assets
to management teams that operate them more efficiently.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to
exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the
same size, agree to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger of equals." Both
companies' stocks are surrendered and new company stock is issued in its place. For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a
new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm to
proclaim that the action is a merger of equals, even if it's technically an acquisition. Being
bought out often carries negative connotations, therefore, by describing the deal as a merger,
deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining
together is in the best interest of both of their companies. But when the deal is unfriendly -
that is, when the target company does not want to be purchased - it is always regarded as an
acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether
the purchase is friendly or hostile and how it is announced. In other words, the real difference
lies in how the purchase is communicated to and received by the target company's board of
directors, employees and shareholders.

Varieties of Mergers
From the perspective of business structures, there is a whole host of different mergers. Here
are a few types, distinguished by the relationship between the two companies that are
merging:

 Horizontal merger - Two companies that are in direct competition and share the same
product lines and markets.
 Vertical merger - A customer and company or a supplier and company. Think of a cone
supplier merging with an ice cream maker.
 Market-extension merger - Two companies that sell the same products in different
markets.
 Product-extension merger - Two companies selling different but related products in the
same market.
 Conglomeration - Two companies that have no common business areas.