Difference between merger, acquisition and amalgamation

The concept of Merger, Acquisition and Amalgamation primarily suggests the compromises and arrangements made by one or more companies in order to form a new separate entity, acquire a subsidiary company or combine two or more companies into one single entity respectively. Such compromises arrangements and amalgamations are talked about in Chapter XV of Companies Act, 2013.

These terms are often used in place of each other but they however are not, Merger is basically combining more than one two equal companies at their own discretion where one company cease to exist, whereas acquisition is a concept in which one entity is wholly acquired or purchased by another entity and Amalgamation on the other hand is an aspect where two or more companies merge in order to form a new entity

 

Differences in these concepts occur on the following fronts:

1. Number of entities involved

In a merger it requires minimum two entities and only one entity is left after absorption of the target company.

For example: there are two companies A and B, merger of A and B will result into company A or company B.

An Acquisition also requires minimum 2 entities after which the control of one company is handed over to the other by selling them shares and assets of the company.

For example: there are two companies A and B, acquisition of A and B will result into company A as well as company B, but the majority shares and assets will be with either A or B.

Unlike merger and acquisition, amalgamation requires minimum 3 entities as amalgamation of two entities will lead to formation of a third separate entity.

For example: there are two companies A and B, amalgamation of A and B will result into a third new company C.

     2.  Company as a result of these processes

In a merger one of the company who targets, absorbs the targeted company and continues it existence, whereas in acquisition the company that is acquired cease to exist and becomes a part of the company that acquired it. In Amalgamation however, the two entities which amalgamate cease to exist and new entity functions.

    3. Size of the Companies

In a merger both the companies are of the same size and work on same scale, whereas in acquisition large companies acquire small companies. However, in amalgamation, the company and its target company’s sized are same.

   4.Their impact on shares

The company that absorbs the shares if the other company acquires the shares of the absorbed company in a merger, whereas in acquisition the acquiring company buys majority shares of the acquired company. However, in amalgamation shares of the new entity are passed on to the shareholder of previous existing entities.

   5. Treatment of accounts

In a merger as one of the companies cease to exist, the stand-alone financial statements of the company that absorbs shows the performance of both the companies, whereas in acquisition as the parent company had just taken up the other company as a subsidiary, the financial statements of both the companies are separate and their performance can be judged accordingly. However, in an amalgamation as the previous two company doesn’t exist, the performance of the new separate entity will be judged by its own financial statements