Business Language: Mergers and Acquisitions

Learning objectives

In this article, you will

• learn about the differences and similarities between mergers and acquisitions (M&As)
• practice key vocabulary on the topic of M&As
• learn which prepositions to use when talking about M&As.

Newsmart Level 2 (A2/B1, TOEIC 255–400, TOEFL iBT 30–40, IELTS 4)

Business Language: Mergers and Acquisitions

At first glance, the difference between mergers and acquisitions seems quite simple: a merger is when two businesses join together to become one; an acquisition is when one business buys another. It might do this by acquiring the other company’s shares (= a purchase of equity) or the things it owns (= a purchase of assets).

In practice, however, the difference between these business language expressions is much less clear-cut. Most mergers actually involve one company buying another before they are merged. True mergers of equals, where two businesses of roughly equal size buy shares in each other, are rather rare. One famous example of a merger of equals is Chrysler’s merger with Daimler-Benz in 1998, which created a completely new company, DaimlerChrysler. But even in this case, many Chrysler shareholders and their lawyers argued that it was in fact an acquisition by Daimler-Benz.

Similarly, many acquisitions result in the merger of the acquired company into the acquiring company (or, occasionally, the other way round). Of course, the two businesses may remain as separate units in the new company, but some form of consolidation — where the two businesses stop being completely separate — almost always happens. After all, the purpose of the acquisition is usually to create synergies between the companies and to streamline their operations. A good example here is Google’s acquisition of YouTube in 2006. YouTube remains a separate unit inside Google, but, thanks to Google’s powerful advertising tools, it has transformed itself into a much more profitable business.

Because there’s no clear dividing line between mergers and acquisitions, it’s common to refer to them together as M&As, and not to worry too much about the precise difference between them. Another way of avoiding confusion is to use the word “consolidation” (instead of “merger”) to describe the process of two businesses becoming one, and “takeover” (instead of “acquisition”) to describe the process where one business (usually a bigger or more powerful one) buys and takes control over another (usually a smaller or less powerful one).

Takeovers can be friendly or hostile. As the name suggests, a friendly takeover is when the managers of the target company are happy with the planned takeover, and recommend the deal to their company’s owners. In a hostile takeover, on the other hand, the target company’s managers don’t want to be taken over. The acquiring company has to persuade a majority of the target company’s shareholders to accept the deal, against the wishes of its managers.

So in terms of business language, perhaps the simplest way of distinguishing mergers and acquisitions is that mergers are always friendly. If the two sides seem to be roughly equal in size and power (even if this is just an illusion), and if the new company takes a new name, we can safely call it a merger. If it’s hostile, on the other hand, or if one company simply swallows the other and carries on as before, we can safely call it an acquisition. For all the cases between these two extremes, it’s safer simply to use the term “M&A.”

Originally published at www.getnewsmart.com.