Merger & Acquisition (M&A)

A merger combines two companies into one new or surviving entity, typically between roughly equal parties; an acquisition is one company buying and absorbing another, typically a larger company purchasing a smaller one. In practice, the two terms are used together ("M&A") because the legal and economic mechanics overlap heavily.

The target company's stock usually jumps toward the announced deal price once an acquisition is announced, and the remaining gap to that price (the arbitrage spread) reflects the market's estimate of the probability and timing risk that the deal actually closes as announced.