With most business terms, it is good to take a quick look at the words or basic terms used. In some cases, corporations and business consultants construct titles for processes that seem to mask true meaning.
To merge is to cause separate items to combine or unite. This action may also include blending as well as blurring the individual characteristics of two or more entities. In some cases, merging results in one or more of the items disappearing or being swallowed by another.
The term “merger” has come to be a business term. It refers to a legal joining or combining of two or more companies, when the individual property and assets are moved to ownership status with one company. The individual businesses combine, though in truth, one may be “swallowed” by another.On the other hand, acquisition means that one entity has acquired another, or gained possession of another. The foundations of this interesting word reach back more than 600 years, when large landholdings were taken over by the owner of another set of holdings.
What does this mean in the modern world of business? In simple form, a merger still means the same as it did centuries ago. Two companies that have been operating independently pool resources such as personnel, inventory and financial assets, with a new company established to control and direct those assets. In short, the two original companies don’t exist as they did before, in a legal sense. However, the reality of modern business allows the term merger to be a bit of a hybrid, as when one company takes on the assets and liabilities of another, with the first keeping its identity. In this case, a merger is a form of acquisition, rather than a true merger. One analyst looks at this in a metaphor: River A merges with River B and the single resulting stream is River AB. In the hybrid merger, River A merges with River B and the resulting stream is still called River A.
Companies may join forces to get some advantage under tax law, or they may combine to do business on a much larger scale. When one company retains its identity after a merger it may realize more benefit, in that the public continues to recognize its original name. The combination may have been made to strengthen the resulting company by adding needed customers and resources from a smaller firm that is part of the merger.
The complexities of mergers and acquisitions are quite complex in the modern, global business atmosphere. In recent years, some have taken to calling the merger of a smaller company with a larger (that exists after the merger) a harvesting of assets and other value that is inherent in the smaller firm. Both companies may look at this action as diversification, though the benefits may vary for each.
As the business world grows more complex, and the reach of a company extends around the globe, new terms may come into play simply to define what has happened between two companies. Consolidation is the term that has recently been applied to the true combination of firms into a new company altogether.