While there are several types of transactions classified under the notion of M&A (Mergers & Acquisitions), a merger means a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.
M&A can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. In all cases, two companies are involved, where an acquiring company makes an offer to buy the other company in its entirety or purchase some of its assets.
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Merger
In a merger, the boards of directors for two companies approve the combination and seek shareholders' approval. After the merger, the acquired company ceases to exist and becomes part of the acquiring company. A merger in 2007 was a deal between Digital Computers and Compaq, where Compaq absorbed Digital Computers.
Acquisition
In an acquisition, the acquiring company obtains the majority stake in the acquired firms, which does not change its name or legal structure. An example of this transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services, where both companies preserved their names and forms of organization.
Consolidation
A consolidation creates a new company. Stockholders of both companies must approve the consolidation, and subsequent to the approval, they receive common equity shares in the new firm. For example, in 1998 Citicorp and Traveler's Insurance Group announced a consolidation, which resulted in Citigroup.
Tender Offer
In a tender offer, one company offers to purchase the outstanding stock of the other firm at a specific price. The acquiring company communicates the offer directly to the other company's shareholders, bypassing the management and board of directors. While the acquiring company may continue to exist, if there are certain dissenting shareholders, most tender offers result in mergers. An example is when Johnson & Johnson made a tender offer in 2008 and acquired Omrix Biopharmaceuticals for $438 million.
Acquisition of Assets
In a purchase of assets, one company acquires the assets of another company. The company whose assets are being acquired must obtain approval from its shareholders. Typically, the selling company is liquidated upon the final transfer of assets to the acquiring firm. The purchase of assets is typical during bankruptcy proceedings, where other companies bid for various assets of the bankrupt company, which later ceases to exist.
Management Acquisition
In a management acquisition, the management of a company purchases a controlling stake in a company, making it private. Such an M&A transaction is typically financed disproportionately with debt, and the majority of shareholders must approve it. In 2013, Dell Corporation announced that it was acquired by its chief executive manager, Michael Dell. This was a management acquisition.
