Both mergers and acquisitions are like marriages; they occur when two separate entities join together. The similarities between a merger and an acquisition end there, however. Mergers happen when two companies combine forces voluntarily because together, they can save costs or improve market reach. Acquisitions are much more aggressive. In an acquisition transaction, one company buys a majority stake in another company in order to take control.
A merger occurs when two separate business entities come together to form a new, stronger company. With an acquisition, the larger company consumes the smaller company so it ceases to exist.
A merger occurs when two companies join together because they believe they will be better together than apart, essentially profiting from the idea that two plus two equals five. For example, an e-commerce company might merge with a logistics company to exploit mutual synergies in their operations and value chain. Legally, the two businesses must consolidate into a new, joint entity to complete the merger. In a true merger scenario, the shareholders of both companies must surrender their current stocks and receive new stocks under the name of the new business entity.
Often thought of as the merger's hostile cousin, an acquisition occurs when one organization buys all or most of another company's shares in order to take control of its operations and management decision-making. Instead of a new organization emerging, the larger company consumes the smaller company such that the smaller company ceases to exist. While mergers require little more than a meeting of minds, acquisitions require large amounts of capital to execute. The purchasing company has absolute power, however, and can use a hostile acquisition to effectively wipe out the competition.
It's easy to think of "friendly" mergers and "hostile" acquisitions, but in reality, the difference can be very subtle. Mergers of equals happen rarely as each company must volunteer to water down its individual power for the benefit of the combined entity. It is unusual for two different CEOs and two sets of shareholders to agree to dilute their current level of control, and one partner inevitably ends up with more ownership and authority than the other. Staffing decisions must also be made as there is often duplication among the executive team.
Similarly, not all acquisitions are hostile. Sometimes, the target company welcomes the takeover and the parties work closely together to agree on a beneficial valuation and buyout strategy. The acquisition occurs only when both parties are happy with its terms.
Since an unequal merger looks a lot like an acquisition, and an amicable acquisition looks a lot like a merger, the difference between a merger and acquisition is one of the names only most of the time. Certainly, there are winners and losers in both types of transactions. In view of this, the two terms have increasingly become blended and used in conjunction with one another. It's much more common to describe the uniting of businesses as a "merger and acquisition" transaction, rather than as a merger or an acquisition, in recognition of the complexity of today's business restructurings.