Difference Between Amalgamation and Acquisition
Corporate strategies are changing whit the change of time. Companies are trying to control larger markets. They are in search of new customer base. As a result they are becoming larger than ever. A company tries to expand in many ways. The growth of a company may occur horizontally as well as vertically. The companies adopt generally the policies of Amalgamation and acquisition. These help the companies to become larger and resourceful. These two strategies are very common in today’s market. However, people do not understand the implications of these two strategies. Let us try to understand the difference between Amalgamation and Acquisition.
Amalgamation means consolidation of two or more companies with a view to expand so that businesses may become larger with increase in profits. Amalgamation takes place where two or more business companies join hands to form a new business that is larger. After amalgamation larger company has access to more resources. The shareholders of former companies are given shares of the new company which is formed after the merger of the two companies. Generally, in the process of Amalgamation merger of a smaller entity into a bigger entity may take place. After amalgamation stocks of both companies are dissolved and new stocks are issued to the shareholders. Old board of directors is dismantled and a new board of directors is formed to run the affairs of the new company.
Acquisition refers to acquiring assets of a Company by another one. Actually, one company buys the assets of another company. The shareholders of the company which is taken over are issued stocks of the buying company. In Acquisition two companies of unequal size are combined together while amalgamation takes place between companies of equal size. Amalgamation of two companies is an example of horizontal expansion. Amalgamation is intended to avoid competition and to have larger number of customers. Acquisition is friendly while amalgamation is friendly as well as hostile.