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How do business mergers and acquisitions differ?

Two different companies coming together into a single entity can mean different things. You may have heard about businesses merging or one company acquiring the other. If you are a business owner, you should know that mergers and acquisitions are not the same.

Depending on how your business combines with a second company, you may lose control over your business. The Street breaks down what makes a business merger different from an acquisition.

How mergers work

Generally, a merger occurs when two companies mutually agree to come together into a single business. In general, mergers involve businesses of similar size.

The owner of each business may initiate the decision to merge, or a board of directors can take a vote. The final result is typically a single business where the owners of the two previous companies exercise equal control over it.

How acquisitions work

In contrast to mergers, an acquisition usually does not involve companies of comparable size. A larger business will seek to acquire enough interest in a smaller company to take control of it. When this happens, the smaller business typically no longer exists and is now a part of the larger business.

Sometimes a smaller business wants another company to acquire it in a friendly takeover. However, sometimes a company will exercise a hostile takeover. This happens when a business bypasses the board of directors of a target company and directly buys the company shares from shareholders.

A combination of two businesses can be profitable for all involved. However, you should be sure that you have chosen the right way to merge with another business so you do not lose important rights to your enterprise.