Differences Between Mergers and Acquisitions: Goals, Results, and Beneficiaries

The terms merger and acquisition have emerged in the last 10 years. Especially when startups and technology companies emerged. Mergers and acquisitions indicate changes in one or more companies.

Both have different meanings and goals. The end result and process of both are also different. However, many people still confuse the meaning of the two terms.

So that you don't get confused, understand in depth the differences between mergers and acquisitions in the following article.

Definition of Merger

Quoting Investopedia, a merger is the process of combining two companies into one company based on mutual agreement. Usually in a merger, both companies have the same size and similar businesses. Both believe that collaboration and merger will help them maximize their services.

Definition of Acquisition

An acquisition is a transaction in which one company buys and controls another business. In other words, an acquisition is the process of merging and taking over by a larger or stronger company. The acquired company is usually in poor financial condition. To help them, the larger company will buy everything from the business, stocks, employees, to products.

Differences Between Mergers and Acquisitions:

Summarizing Indeed and the Corporate Finance Institute, here are the differences between mergers and acquisitions:

Procedure

Merger and acquisition procedures always involve two companies, attorneys, owners, and investors.

Merger: Two or more companies that previously stood alone merge into one new company. Mergers do not involve money.

Acquisition: One company buys and takes over another company in its entirety. In an acquisition, the purchasing company will spend money to buy shares in the company.

Objectives

The objectives of mergers and acquisitions differ, depending on the needs and conditions of each company. The objectives of each process are:

Merger: To reduce operating costs, expand business to new markets, and increase revenue and profits.

Acquisition: To obtain technology or equipment owned by another company. The technology will be considered a long-term investment and savings in research and technology development costs.

Company name

Depending on company policy and how well-known a brand is, the company name after a merger and acquisition will be different.

Merger: Two or more companies merge into one company with a new name.

Acquisition: The company making the acquisition will become the parent company and the acquired company will become part of the parent company. However, in some cases, the acquired company continues to operate under its original name, if it is already known to the public.

Example: OVO which has been acquired by Grab, but continues to operate as an independent application.

Company size

To understand more about mergers and acquisitions, know the differences in the size and form of the companies that will carry out the process.

Merger: The companies involved have similar forms, sizes, types of businesses, and operational systems.

Acquisition: The acquiring company will be larger in size, operations, and finances.

Beneficiary parties

Consumers can see directly which party benefits from the merger and acquisition process. Here are the differences:

Merger: The two companies involved will benefit because resources increase, technology increases, have new products, operations become more effective. According to their goals, both companies want to achieve mutual benefits.

Acquisition: The acquiring company will receive more benefits. They will get new technology, increased company capital, shares, new consumers, and new employees.

Results and conditions of the company

The results and conditions of the company after the merger and acquisition process are also different, namely:

Merger: There are new companies that emerge and have characteristics from each of the merged companies. However, sometimes the new companies that emerge have different businesses and products from their predecessors.

Acquisition: In many cases, the acquired company will no longer operate and disappear from the market. However, there are some companies that continue to operate with a new name.

Stock conditions

Investors will also definitely be affected by mergers and acquisitions. Here are the differences:

Merger: Investors will get new shares from the new company resulting from the merger of two companies.

Acquisition: The company making the acquisition will immediately buy the investor's shares during the acquisition process. Then, the investor can buy the parent company's shares.

Power holders and decision makers

Of course, when two companies merge or join forces, the ranks who previously led the company will also be affected.

Merger: The stakeholders in both companies will discuss and agree on the new company structure while still in the early stages of the merger. Usually, both parties also have equal power in making decisions.

Acquisition: The leader of the company making the acquisition will have stronger power and become the main decision maker.

Risks

Both mergers and acquisitions have risks that companies must be aware of, namely:

Merger: The new company created from the merger does not meet consumer needs, has the potential to fail.

Acquisition: The acquired company has a lot of debt and must be paid by the acquiring company. Higher costs will be incurred, which can disrupt the company's financial condition.

Those are some of the differences between mergers and acquisitions that you should know. It can be concluded that a merger is the process of uniting companies that have similar goals. Meanwhile, acquisition is the activity of purchasing small or troubled companies carried out by large companies.

However, in addition to mergers and acquisitions, there is currently a trend of partnerships or alliances. Alliances are formed to face market changes and consumer needs, as well as by considering social and environmental conditions. The goal is to produce value creation for stakeholders.

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