Owning a Massachusetts business involves careful decisions and strategy about how to best grow the company. Sometimes a business goes as far as it can. A possible solution to expand an enterprise is to combine it with another business.
Joining companies can yield numerous benefits, such as expanded market reach and increased efficiency, as well as access to new technologies or talent pools. However, certain advantages and challenges depend on whether the combination takes the form of an acquisition or a merger.
How an acquisition works
In an acquisition, a larger company purchases and absorbs a smaller one. The acquired company essentially ceases to exist as a separate entity, becoming a subsidiary or division of the acquiring company. The acquiring business maintains control over the combined organization, including leadership, branding and operations.
How a merger works
A merger involves two companies of relatively similar size joining to create an entirely new entity. In a true merger, both companies contribute assets, operations and leadership to the new organization. Usually, the resulting company adopts a new name and brand, with leadership and decision-making shared between the previously separate entities.
Key distinguishing features
Acquisitions often involve one company absorbing the other as a subunit while mergers create an entirely new corporate structure, with assets and operations combined under a new entity. So if your company becomes acquired by another business, ownership and control will likely remain with the acquiring company. However, in a merger, the parties share ownership more equally.
Additionally, acquired companies typically lose their branding and adopt the identity of the acquiring company. By contrast, merged companies establish a new brand identity distinct from the pre-merger entities.
When considering a business combination, carefully evaluate your priorities and objectives. If retaining control and leadership is your goal, an acquisition may be the preferred route. However, if equal partnership and shared governance are more important, a merger may be the better option.
