The main reason a company would buy another company is to create shareholder value greater than the sum of the two companies. That is the main rationalization behind mergers and acquisitions, two companies are more valuable when they are together than when they are separate.

Mergers and acquisitions occur most frequently when times are tough.

During these times large companies will buy out other companies to create one competitive, cost efficient company. Two companies combine in order to become more efficient.

Although mergers and acquisitions seem to be one in the same, they are actually different, but still very similar. An acquisition is when one company takes over another company and is established to be the new owner of the company. The company which is taken over completely ceases to exist. On the other hand, a merger is when two companies agree to join together and become one singly operated company. Sometimes when an acquisition occurs it is said to be a merger because acquisition has a negative implication that goes with it. More importantly, whether a purchase is considered a merger or acquisition depends on whether it is a friendly or hostile purchase.