Mergers and acquisitions (M&A) are the two main types of corporate transactions. They are often used interchangeably, but they are two different things, with very different legal, tax, and operational implications for the companies involved.
In this guide, we explain exactly what each one is, the key differences between a merger and an acquisition, the types of each, and when it makes sense to choose one or the other.
What is a merger?
A merger is the combination of two or more companies to form a new entity or to integrate into one of them. In the process, at least one of the original companies ceases to exist as a legal entity, transferring all its assets and liabilities to the resulting entity.
The main characteristics of a merger are:
- Full integration: the companies combine 100% into a single structure.
- New legal entity (in some cases): a new company is created to replace the previous ones.
- Mutually agreed decision: it is usually an agreement between two parties that see themselves as equals or as complementary.
- Shares instead of cash: the shareholders of the merged companies receive shares in the new entity.
Mergers usually take place between companies of similar size and weight that want to create a stronger company by pooling their resources. This is known as a "merger of equals".
What is an acquisition?
An acquisition is the purchase, in whole or in part, of one company by another. Unlike a merger, one company "prevails" over the other: the acquired company becomes part of the acquirer or remains an independent subsidiary, but never on an equal footing.
The main characteristics of an acquisition are:
- Purchase of equity: the acquiring company buys shares or equity interests in the target.
- Legal continuity of the target (often): it can continue to exist as a subsidiary.
- Payment in cash, shares, or a mix.
- Controlling relationship: one party controls the deal.
Acquisitions are the most common type of deal in M&A involving Spanish SMEs. The most widely used vehicle is the share purchase agreement (SPA), the contract through which the buyer acquires the company's shares or equity interests.
Types of mergers
There are different types of mergers depending on how the deal is structured:
- Pure merger (consolidation): two companies of similar size combine, both lose their legal personality, and they create a new company that takes on all their assets and liabilities.
- Merger by absorption: one company fully absorbs another. The absorbed company ceases to exist as a legal entity; the absorbing company continues to exist but takes over all the assets of the absorbed company.
- Partial contribution of assets: a company transfers only part of its assets to the other company in the M&A deal. It is a hybrid between a merger and an acquisition.
In real-world corporate transactions, mergers can also be classified by the industry of the companies involved: horizontal (same industry), vertical (supply chain), or conglomerate (different industries). If you want to go deeper, we recommend our guide on types of mergers and acquisitions.
Types of acquisitions
Acquisitions also come in several forms depending on how the purchase is executed and who the buyer is:
- Full acquisition: The buyer acquires 100% of the shares or equity interests, taking full control of the company. This is the most common type among Spanish SMEs.
- Partial acquisition: The buyer acquires a significant percentage (usually between 20% and 80%) that gives it influence or management control, but not full ownership. This is common in private equity deals that invest in companies with growth prospects.
- Tender offer (OPA, Oferta Pública de Adquisición): For listed companies, the acquisition is carried out through a public offer made to all shareholders. A tender offer can be friendly (agreed with management) or hostile (against the board's wishes).
- Leveraged buyout (LBO): An acquisition financed mainly with debt, where the acquired company itself serves as collateral for the financing. Widely used by private equity funds. To learn more, read our guide on what an LBO is.
- Management buyout (MBO): An acquisition led by the company's own management team. It can be an excellent succession solution when the founders want to step away. More details in our guide on MBOs for SMEs.
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Merger or acquisition? When to choose each
The choice between a merger and an acquisition depends on the strategic objective and the characteristics of the parties involved:
A merger is usually preferable when:
- The two companies have similar size and power.
- The goal is to create a new identity and combine corporate cultures.
- The operational and commercial synergies are large and require full integration.
- The aim is to spread control among the shareholders of both companies.
An acquisition is usually preferable when:
- One company wants to take clear control of the other.
- There is a significant size difference between the parties.
- The goal is to preserve the brand and structure of the acquired company (as a subsidiary).
- The buyer prefers paying in cash rather than exchanging shares.
- The seller wants to cash in on their effort (retirement, exit of partners).
Before deciding between the two, you need to be clear on the company's valuation, the seller's personal goals, and the buyer's strategy. The due diligence and the negotiation of the LOI are the stages where this decision takes shape.
Frequently asked questions about mergers and acquisitions
What does M&A mean?
M&A stands for Mergers & Acquisitions. It covers all corporate transactions involving the purchase, sale, merger, and restructuring of companies, whether strategic or financial.
Which is more common, a merger or an acquisition?
In deals involving Spanish SMEs, acquisitions are far more common than mergers. The reason is practical: a purchase is operationally simpler and solves typical situations such as succession, the exit of partners, or bringing in new capital. Pure mergers are more common among large corporations.
How long does an M&A deal take?
It usually takes 6 to 12 months from first contact to closing, although this depends heavily on the complexity of the deal and the due diligence findings. At Deale, thanks to a digitized process, we have facilitated deals closed in under 100 days. To see the full process, read our guide on the 5 stages of a business sale.
Why do some M&A deals fail?
The most common causes are: poorly managed cultural integration, misaligned valuation, overestimated synergies, incomplete due diligence, or communication problems between the parties. That's why having experienced advisors and a well-structured process is key to success.
