The saying goes, “Call a spade a spade.” But in the world of mergers and acquisitions, it’s more like calling a spade a shovel. The terms are not interchangeable. Rather, they’re most often used together, or merger is stated when the accurate term is actually acquisition.

Technically, there’s a considerable distinction between mergers and acquisitions. While both are the blending of two entities, the difference between the two revolves around the processes of how the two organizations are combined.

• Mergers occur when two companies become one entity by uniting the processes of the two. They blend the processes and people into one harmonious entity with no purchase transaction. Typically, the new organization has a new name and new company stock is issued in place of the surrendered stock of the two separate companies, if applicable
• Acquisitions involve one company taking over another. The buyer’s name and processes are used for the new entity. Legally, the seller no longer exists while the buyer’s stock continues to be traded. When it is beneficial to do so, the locations and people of the seller become a part of the buyer’s business.

A true merger in which neither company’s processes take over the other’s is fairly uncommon, partially because it is costly to keep both companies’ processes alive.

The blending of two entities is frequently communicated both internally and externally as a merger, even when it’s technically an acquisition, likely because the term merger is more palatable to the seller and seller’s team. The term acquisition often bears negative connotations for the company that was purchased, even with a successful, desirable sale.

• Using the term merger may ease the transition as the two companies blend. People may feel more secure in their positions and may be more comfortable believing that there will be less change in culture.
• Calling the acquisition a merger may help to retain people and customers.
• The term merger may help the owner of a closely-held business feel as though the legacy of his work will carry on while the term acquisition may make him/her feel that his/her legacy was gobbled up by a larger entity.

When you read about a merger in the news, take a closer look. You may discover that in the purest sense, it’s truly an acquisition. However, the companies and people involved may benefit from the positive associations with the term merger, making it acceptable, and even constructive, to call it a merger. In the end, sometimes calling a spade a shovel is the right thing to do.