Merger

• The legal definition of a merger states that “a

merger requires the consolidation of two
companies into a single entity with a new
ownership and management structure.” A
merger helps companies to enlarge their
reach, obtain increased market shares, and
diversify their services.
 Reasons for Adopting the Merger
• Elimination of Operating Inefficiency
One of the primary benefits of merging two or more companies is that it
increases the number of operating economies. Under the supervision of
superior management, the possibility of any duplication in accounting,
marketing, or purchasing gets minimized.
• Synergy
Synergy is the higher combined value of merged companies in contrast to the
total sum values of individual firms. When a company having few resources
and operating heads merges with another company possessing plenty of
resources, it results in a more potent firm than a single entity.
• Enlarge Diversification
Every company excels in different domains; the merger helps companies to
expand their realm with diversification. It lessens the risk factor for the
individual organization that singlehandedly tries its hands in a new field. Since
both the companies hold competency in diverse areas, they can efficiently deal
with any obstacle once merged.
• Optimum Financial Planning
• The newly merged company has the leverage to perform optimum utilization of
resources. With the availability of abundant collective finances, the merged
company can create various innovative plans to use it effectively. Thus
improves the financial position of the company as a whole.
 Acquisition?
• An acquisition refers to a corporate transaction
wherein a company purchases a portion or entire
shares/assets of another company. The
acquisition is ideally processed to take charge of
the target company’s strengths and seize
synergies.
• During the execution of such corporate
transaction, the acquiring company buys the
target company’s shares or assets, which provides
a sense of authority to the acquiring firm to make
any decisions in regards of acquired assets
without needing the consent of shareholders
from the target company.
 Benefits of Acquisition
• Access to Capital
By embracing acquisition, one gets access to the capital of a larger company. Usually,
Entrepreneurs owning small businesses face the trouble of investing their own money to
sustain growth. Acquisition facilitates a handsome amount of capital, enabling the
required funds to Entrepreneurs without the need for descending their pockets.
• Larger Pool of New Talent
The acquisition provides many benefits; one of them involves access to more competent
and skilled resources , which helps to boost revenues and ultimately improving the
growth scale of the company.
• Improved Market Power
One has to be ahead of his competitors to secure a supreme position in the market,
having said that, an acquisition speedily helps to escalate the market share of a company.
Moreover, it reduces the competition’s progress. To survive in an extremely competitive
market, one needs to adopt a smart strategy like acquisition, which will not only help
your company in the growth aspect but also decreases the capacity of competitors.
• Lessens Entry Restrictions
If one acquires the shares of a progressive company, then it eases its way to diverse
product lines and new markets instantly with an esteemed brand having a client base
already. Companies can overcome the strict market barriers through acquisition. The
process of acquisition has simplified the market entry for small companies who were
earlier compelled to bear considerable expenses in the development of new products,
market research, and investing much time to form an ample client base.
 Amalgamation

• An amalgamation is a type of merger in which

two or more companies join their businesses
to create an entirely new company/entity. It is
an adequate arrangement of two or more
companies that operates the same industry;
thus; amalgamation plays a vital role in
reducing the operational cost.
 Advantages of Amalgamation
• Operating Economics
The operating economics refers to the expenses associated with day to day activities
of the business. When two companies amalgamate, their business operation
expands, which further assists them to optimize the economies of a larger entity’s
production and distribution. Also, it decreases various internal expenses of the
company, like managerial cost, operating cost, etc.
• Financial Perks
The amalgamated company earns an array of financial benefits such as tax benefits
specifically when a company loss making company amalgamates with a profit making
company.
• Speedy Growth
As per a report, an amalgamated company grows at a faster pace than an individual
company. The central reasons behind the rapid growth of amalgamated companies
are sufficient ability to face competition, can leverage joint expansion plans, and
share past experiences when needed.
• Access to Effectual Managerial
There is no shortcut to success; one requires the right guidance and managerial skills
to obtain the desired outcome. An amalgamated company can improve its
managerial effectiveness by replacing the inefficient staff with a competent group of
managers. They have the liberty to hire skilled professionals with enough experience
in the concerned industry.
• Now that you have attained enough knowledge of merger, acquisition, and
amalgamation, so it’s time to resolve the central query which revolves around these
terms i.e., the difference between a merger, acquisition, and amalgamation.
 Basis of Merger Acquisition Amalgamation
Differences

Required Minimum 2 companies are Minimum 2 companies are Minimum 3 companies are
Number of required as only one required wherein one required since amalgamation of
Entities company will remain after company takes over the 2 results in a new entity.
absorbing the target shares and assets of another
company. company.

Size of the Both the companies Small to medium size firms The sizes of the target companies
Companies involved are equal in terms are acquired by the larger are comparable.
of size. companies.

Impact on Shares of the absorbing The buyer company Shares of the new entity are
Shares company are given to the purchases more than 50% given to the shareholders of
shareholder of absorbed shares of the target company. existing firms.
company.

Resultant One of the existing The acquired company ceases Existing companies lose their
Entity companies absorbs the to exist and becomes the part identity to form an entirely new
target company for to of acquiring company. company.
retain its identity.
Driver for Mergers are usually Acquisition is driven by Amalgamation is initiated
Consolidation driven by the the buyer company with by both the companies with
absorbing company. or without consent of the equal interest.
acquired company.

Accounting Assets and liabilities One firm acquires all the Assets and liabilities of the
Treatment of absorbed assets and liabilities of the existing firms are
company are target firm. transferred into the balance
consolidated. sheet of the newly form
company.

At least two entities

At least two entities At least two entities are involved
are involved and
are involved and and one takes over the assets
No. of Entities create a new entity
one will cease to and shares of others and
Involved after
exist. A+B ——— influences the voting rights. All
consolidation. A+B —
—–> A or B companies might exist together.
————> AB or C