Merger and Acquisition is a very common term in Financial Management. I would like to define Merger and Acquisition in a simple manner.

■ Mergers

Merger is also known as Amalgamation. A merger is going to take place when two or more companies combined into one single company. Here the two or more companies can merge with and existing company or they may form a totally new company after merger.

Key points of Merger:

 • There can be complete amalgamation of the two companies [assets and liabilities of the two companies]
 • One company may purchase the other company without giving proportionate ownership of the acquired company to the shareholders.
 • The acquiring company may not continue the business of the acquired company.

Forms of Merger:

There are mainly two forms of merger. They are...
 I.  Merger through absorption
 II. Merger through consolidation

   I. Merger through absorption:

It takes place when two or more companies combines into a new company. All the companies except one lose their identities due to this kind of merger.

E.g. the merger of Global Trust Bank (GTB) with the Oriental Bank of Commerce (OTB) is an example of merger through absorption. After the merger GTB lost its identity.

    II. Merger through consolidation:

Here two or more companies combine into a singe company having its own identity. All companies are legally dissolved and the merger creates a new entity. The acquired company gives/transfers all its assets, liabilities and shares to the acquired company either through cash or exchange of shares.
e.g. After the merger through the consolidation Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian Reprographics Ltd. Altogether became a new entity which is now known as HCL Ltd. This merger took place in the year 1986.

Types of Merger:

There are mainly three types of merger. They are...
 I.   Horizontal Merger
 II.  Vertical Merger
 III. Conglomerate Merger

    I. Horizontal Merger:

When the merger takes place between two or more firms which are involved in similar kind of production, distribution or area of business then it is called the horizontal merger.
e.g. A two garment manufacturing companies merge together to gain a large market share.

    II. Vertical Merger:

When two or more firms who are in different stages of production and distribution merge with each other then it is called the Vertical Merger.
e.g. A garment manufacturing company and a garment marketing company merge with each other.

Vertical Merger may be of two types. They are...

  a. Backward Merger
e.g.: [when a company combines with the suppliers or the vendors]

 b. Forward Merger :
e.g.: [When a company combines with the customers]

    III. Conglomerate Merger:

Here the companies who merge with each other are involved in unrelated lines of business activities.
e.g.: A manufacturing company (deals with the fertilizers) merges with another manufacturing company (deals with an electronic company)

■ Acquisition

It may be defined as an act of acquiring control over the assets or management of a company by the acquiring company. Here generally no combination takes place between the two companies.
In a substantial acquisition the acquiring company may acquire acquires substantial amount of shares, voting rights of the target company.
e.g.:

 • Acquisition of 28% equity of IDM (International Data Management) by HCL Ltd.
  • HCL Technologies have already completed its acquisition over the AXON Group (UK).
HCL Technologies Ltd. announced on 15th December, 2008 that its £440m cash offer for the leading UK- based company, AXON Group has been completed successfully. AXON Group is mainly a SAP Consulting Company based on UK.