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Amalgamation vs Merger Differences

A merger is when two or more companies/entities are combined to form either a new company or an existing company absorbing the other target companies. It is a process of consolidating multiple businesses into one business entity.

The merger process Merger ProcessMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion.read more may involve two possibilities in the above example: –

  • A new entity, XYZ Corp., is formed to house the assets and liabilities of existing entities. Hence, the survival of ABC Corp. and PQR Corp. ceased to exist.On the other hand, ABC Corp. is a relatively more robust entity absorbing PQR Corp. Therefore, the resultant entity is the absorbing company, i.e., ABC Corp.

AmalgamationAmalgamationAmalgamation is the consolidation or combination of two or more companies, known as amalgamating companies, usually in the same or similar line of business, to produce a new legal entity, known as the amalgamated company, with the same shareholders, assets, and liabilities.read more is a merger process in which two or more companies combine their businesses to form an entirely new entity/company. Amalgamation is an appropriate arrangement wherein two or more companies operate in the same industry. Thus, amalgamation helps reduce operational costs due to functional synergy.

ABC and XYZ Corp. will cease to exist after the amalgamation process resulting in a new entity, JKL Corp.

Amalgamation vs. Merger Infographics

Key Differences Between Amalgamation and Merger

  • There is a very subtle difference as both processes are a way to consolidate multiple companies.Amalgamation is a type of consolidation process used under a merger.Amalgamation results in the formation of an entirely new company. However, a merger is a consolidation process wherein the resultant company may be a new or existing company. A minimum of two companies are involved in a merger. However, a minimum of three companies are required for the amalgamation process.The size of the companies involved in the amalgamation process is of a comparable level. However, the size of companies in the merger process is different as an absorbing company is expected to be relatively larger than the size of an absorbed company.Assets and liabilities of the existing entities in the amalgamation process are transferred to an entirely new entity. However, the assets and liabilities of the absorbed entity in the merger process are consolidated into the absorbing entity.Shares of the absorbed company are given to shareholders of the absorbed company in the merger process. However, shares of the new entity formed in the process are given to the shareholders of the existing entities in the amalgamation process.

Comparative Table

Why Do Companies Go for Amalgamation and Merger?

  • Diversification into multiple industries without going through hurdles of starting afresh.To achieve economies of scale for cost optimization, access to a larger market, effective utilization of resources, etc.To achieve operational synergy by targeting companies in the same industry/similar product lines Industry/similar Product LinesProduct Line refers to the collection of related products that are marketed under a single brand, which may be the flagship brand for the concerned company. Typically, companies extend their product offerings by adding new variants to the existing products with the expectation that the existing consumers will buy products from the brands that they are already purchasing.read more.To achieve growth targets in less time.The advantage of taxation is combining a loss-making company with a profit-making company, thereby reducing the tax liabilities.Reduced competition in a specific industry by combining two entities.To achieve effective financial planning with a resultant entity with a bigger balance sheet and utilize financial resources effectively.Increased control over the value chain in a specific industry by the forward integration and backward integrationBackward IntegrationBackward Integration is a vertical integration type in which a Company buys or integrates with its supplier firms to improve efficacy, save costs, & gain more control over the production process.read more

Conclusion

Both are the processes of consolidation of two or more companies into a new entity or an existing entity absorbing the target entity. A resulting entity may be a new or existing entity in the process. Amalgamation is a type of consolidation process under a merger.

In the amalgamation process, two companies combine to form a new entity. And, merger helps companies achieve their goals such as growth, increase in shareholders’ value, an increased economy of scale, synergySynergySynergy is a strategy where individuals or entities combine their efforts and resources to accomplish more collectively than they could individually.read more, access to larger market/new geographies, entry into a new industry, etc.

Amalgamation vs. Merger Video

This article is a guide to Amalgamation vs Merger. Here, we discuss the top differences between amalgamation and merger, infographics, and a comparison table. You may also have a look at the following articles: –

  • Mergers vs. AcquisitionsStatutory Merger