A merger is the term used for when two companies combine to become a single entity. Companies may do this for a number of reasons, including to increase market share, reduce competition or achieve strategic objectives.

Once a merger has taken place, one company may absorb the other or they may form a new entity.

Mergers typically take one of five forms, each with a specific strategic purpose depending on the relationship between the companies involved, including:

• Horizontal merger - a merger between two companies in the same industry (e.g. two airlines) and at the same stage of production. Horizontal mergers often take place to increase market share or economies of scale or to reduce competition.
• Vertical merger - a merger between two companies at different stages of a supply chain (e.g., when PepsiCo purchased a bottle maker). Vertical mergers often take place to reduce outsourcing costs, improve efficiencies and to gain greater control over its supply chain and process.
• Conglomerate merger - a merger between two companies in unrelated businesses. Conglomerate mergers often take place to diversify a business’s operations and reduce its overall risk.
• Market extension merger - a merger between two companies that sell similar products in different markets. Market extension mergers often take place to expand a company’s customer base and enter new regions.
• Congeneric merger (also called a product-extension merger) - is a merger between two companies that offer different but related products in the same or similar industry. They are not direct competitors (unlike in a horizontal merger), but they complement each other and may share customers.

An acquisition is the term used when one company buys another company and takes control of its operations, assets, and liabilities.

The acquiring company becomes the new owner, and the acquired company may continue to operate under its original name, or it may be absorbed completely by the acquiring company.

A company can effectively acquire another if it buys more than 50% of its shares.

A company takeover is the term used for when one company acquires control of another company. This often happens when a company purchases a majority of the target company's stock.

While the terms takeover and acquisition are used interchangeably, the former can be more hostile or uninvited. Takeovers may not be as “friendly” and can be met with resistance from the target company's management.

Mergers and acquisitions (also abbreviated to M&A) offer a number of strategic, financial and operational benefits to the companies involved.

One of the biggest benefits is growth and expansion - enabling companies to increase market share, geographical range, revenue and products or services at pace without starting from scratch.

They also facilitate instant access to a wider pool of talent and technology while eliminating competition.

The main difference between mergers and acquisitions is how the companies combine and who has control.

Put simply, mergers are partnerships while acquisitions are takeovers and both have different implications for the companies involved, particularly with regards to the acquired company.

In the case of a merger, two companies combine as equals to form a new entity or continue as one, often by mutual agreement and with shared ownership and control.

Whereas in the case of an acquisition, one company buys and takes control of another, which may become a subsidiary or be fully absorbed. Acquisitions may not always be friendly and can sometimes be hostile. They result in one-sided ownership and control.

Mergers and Acquisitions (M&A) is a broad term used to describe the process of two companies combining or one company buying another.

M&As include all types of acquisitions, including mergers (two companies combine), acquisitions (one company buys another) and takeovers (a specific kind of acquisition).

Whereas a takeover is a specific type of acquisition where one company gains control of another, potentially by purchasing a majority of its shares.

M&A deals tend to be friendly while takeovers can be uninvited and more aggressive in approach and could be either friendly or hostile.

Generally, all takeovers are acquisitions, but not all acquisitions (or M&As) are takeovers.

Takeover defence strategies are tactics designed to protect a company from unwanted acquisitions, either by making the takeover financially difficult, legally complex or less attractive to the acquiring firm.

The aim of the tactics is to discourage a hostile takeover, which is when another company tries to gain control without the target company's consent.

Defence tactics can be pre-emptive or reactive to an attempted takeover, and can include:

• Poison Pill - the target company enables existing shareholders to purchase additional shares at a discounted price to dilute the potential acquirer’s stake, making a takeover more expensive.
• White Knight - the target company seeks a more favourable company to acquire it.
• Golden Parachute - offers large payouts to executives if they are terminated following a takeover, making the takeover deal more expensive.
• Pac-Man Defence - the target company attempts to acquire the company attempting to acquire it.
• Crown Jewel Defence - the target company threatens to sell its most valuable asset to make it less attractive to the company attempting to acquire it.
• Staggered Board (also called a classified Board) - is where only a portion of the Board of directors is elected each year, typically one-third. This means that it would take an acquiring company several years to gain full control of the board, making it more difficult for a hostile bidder to quickly gain control of the board.
• Greenmail - the target company buys back its own shares held by the potential bidder at a premium.
• Dual-Class Share Structure - when the target company issues different classes of stock with unequal voting rights to retain control for founders or insiders.

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