Last answered:

19 Mar 2024

Posted on:

19 Mar 2024


Confusion Between Merger & Acquisition

I have a tad bit confusion between the two.

In Mergers , two seperate entities of similar sizes are "Merged" into a single entity , It can be a spin-off right? So both of them can cease to exist?

While In Acquisitions , one entity engulfs the target entity and absorbs all assets and equity, The Bigger Co. acquires the smaller co. and the smaller Co. to ceases to exists.

So doesnt the target Co. usually ceases to exist in both the cases? How can you differentiate on the basis of the existence of the entity [apart from comparing the size of the purchasing co. from the target co.] 

1 answers ( 0 marked as helpful)
Posted on:

19 Mar 2024


To provide a bit of clarity, a spin-off may happen but it will not be the case every time. The target company on the acquisition is being absorbed and could retain some independence and become a subsidiary of the acquirer but in some cases, they utilize the assets that come along with the process and integrate it into their operations(see JPMorgan and Bank One case). The specific structure depends on factors such as tax implications, regulatory requirements, and the desired outcome for both parties. In conclusion, a merger creates a new entity while an acquisition may or may not create a new entity.

You may also check the recent 2022 Citigroup exit from 13 countries and how they sold their local consumer banking divisions in each jurisdiction. 

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