Mergers and Acquisitions: Process and Benefits in Financial Science

Corporate Secretary Service Indonesia – Merger & Acquisition are two terms that we often hear in the business world, but what exactly do they mean? Let’s discuss them one by one in simple language.

Merger

Merger is actually the merging of two companies into one. Imagine two companies A and B, they decide to merge into a new company, for example AB. So, companies A and B no longer exist individually, there is only a new company as a result of their merger. The objectives can vary, for example to enlarge the market, reduce competition, or increase efficiency.

Acquisition

Acquisitions are a bit different. Here, one company buys another company. So, for example, if company C buys company D, then company D is now owned by company C. Company D can still exist with its name and operations, but it is now under the control of company C. The purpose of these acquisitions is usually to access new technology, expand markets, or gain resources that the purchased company has.

Reasons Behind Mergers and Acquisitions

Mergers and acquisitions are two things that companies often do to grow or survive in business competition. So, why do companies do mergers or acquisitions? Let’s discuss it in simple language!

1. Increase Market Share

Imagine if you own a coffee shop and there is another coffee shop that is quite crowded near you. Instead of continuing to compete, you can merge your coffee shop with that coffee shop (merger). As a result, the customers of the two shops will all belong to you. By merging, the company can increase its market share and become stronger against competitors.

2. Product Diversification

Sometimes, companies feel the need to increase the variety of products or services they offer. For example, an electronics company that usually only sells TVs can acquire a company that makes refrigerators. That way, they can sell more items without having to start from scratch.

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3. Operational Efficiency

Mergers and acquisitions can also make operations more efficient. For example, two merged companies can save on production costs because they can buy raw materials in bulk at lower prices. In addition, they can also share facilities and technology, making it more cost-effective.

4. Acquire Technology or Knowledge

Sometimes, there are small companies that have advanced technology or cool innovations. Big companies that have a lot of capital can acquire these small companies to get the technology or knowledge. So, they don’t have to do research from scratch.

5. Reduces Risk

Product or service diversification also helps reduce risk. If a company only sells one type of product, and suddenly that product doesn’t sell well, they can lose a lot. But if they have many types of products, the risk of loss can be divided.

6. Access to New Markets

Mergers and acquisitions can be a quick way to enter new markets, be it geographical markets or new customer segments. For example, a local company can acquire a foreign company to have immediate access to foreign markets.

7. Increasing Company Value

The ultimate goal, of course, is to increase the value of the company. With all the benefits of a merger or acquisition, companies hope that their value in the stock market will also rise, so shareholders will benefit.

These are some of the reasons why companies choose to do mergers or acquisitions. All of these are basically to make the company stronger, bigger, and more efficient. So, Merger & Acquisition are like a winning strategy in the business world.

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