The Difference of Merger and Acquisition, Which is the Most Suitable for Business Expansion
Corporate Secretary Service Indonesia – In the industry and business world, you must be familiar with the terms Merger & Acquisition. Mergers and Acquisitions are strategies companies use to improve their capabilities and competitiveness. Sometimes, people still make mistakes in interpreting and understanding the difference between mergers and acquisitions. The following explains the definitions and differences between the two terms.
Definition of Merger
Merger refers to a mutual consolidation between two or more entities to form a new company with a new name. In a merger, several companies of similar size agree to integrate and combine their operational activities into a single entity. Within the new entity, there is shared ownership, control, and profits. In a simple example, PT Maju and PT Jalan agree to merge and form a new company named PT Visioner.
The main reason for an entity to merge is to bring together the resources, strengths, and weaknesses of the companies so that it is expected that the new company will operate better. Another reason is to reduce competition and get the cooperation that can benefit both parties in the merger.
This also affects the shareholders of the merging companies. The old company’s shareholders on both sides will become shareholders of the new company. Next, let’s look at the definition of an acquisition and what distinguishes it from a merger.
Definition of Acquisition
The purchase or takeover of a company by another company is known as an Acquisition. Acquisitions can be done by buying a company’s assets or by acquiring a shareholding of a company of more than 51%. In a simple example, PT Angka buys 52% of PT Nominal’s shares. This means PT Angka has control over PT Nominal’s business activities.
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However, PT Nominal continues to carry out its business activities. In Acquisition terms, the company that acquires another company is known as the Acquiring Company. Meanwhile, the acquired company is known as the target company. Acquiring companies have more power in size, structure, and business operations. The purpose of an acquisition strategy is almost the same as a merger strategy. Most companies use acquisition strategies to gain instant growth, intense competitiveness, and business expansion. It is expected that the acquiring company can gain a wider market share, increase profitability, and others.
By defining Merger & Acquisition, you know what they are. Let’s take a look at the differences between mergers and acquisitions.
Conclusion on Merger & Acquisition
Nowadays, few companies want to carry out a merger strategy. However, this is inversely proportional to the acquisition strategy. Acquisition strategies are increasingly popular due to extreme business competition. Another reason is that acquisitions are more accessible because they do not need to go through various legal requirements and formalities as in the merger strategy.
However, both strategies have almost the same goal. Both methods are used to gain advantages from taxation-related matters, synergies, financial benefits, increased competitiveness, and many more.
However, there are also disadvantages to both strategies. Such weaknesses include increased employee turnover, conflicts in cultural differences of entities, and others, although this rarely happens. On average, companies that execute Mergers and Acquisitions strategies are Go-Public companies.
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