In the business world, we often hear about mergers and acquisitions of companies. These are processes by virtue of which large groups and corporations are created or grown, seeking not only to gain dimension but also competitiveness, to conquer larger segments of the market.
But for what purposes are they made? What are its effects and advantages? Are there any drawbacks? We will answer these and other questions below, in order to understand the main differences between mergers and acquisitions of companies.
What is an acquisition process like?
The word acquire comes from Latin. It is composed of the preposition ad- (towards) and quaero or quaerere (look), which could be translated as seeking or attracting something to oneself. In a simple way, acquisition can be defined as the process in which a product or service is obtained, through a transaction, and in exchange for a payment.
It is clarified that there is a difference when talking about acquiring a service or product since the first is temporary and the second permanent. For example, when a team acquires a player, it is not that the person belongs to it, but that during the duration of the contract, he will provide his services. It’s different when we buy a pair of shoes, which will remain ours until we sell it, give it away or discard it.
In the same way, a company can acquire real estate, equipment or supplies, for its operations. And you can also buy other companies, becoming the shareholder package of the same. Although the acquisition may not be total, but partial, that is, only part of the share capital of the other company is purchased; in this case, the degrees of control will be different, depending on the percentage of actions.
Now well, there are several reasons to make an acquisition: it is usually an investment, which will lead the owner or owner group to have capital, generating profitability. Or the company can also be acquired for the purpose of selling it later.
In turn, the acquisition of a company can be done in several ways:
- The most common is through a purchase-sale contract; in this case, the buyer makes an offer or the seller offers, the terms are discussed and the sale is finalized.
- Secondly, through a public offer of acquisition of shares.
- And finally, through financial leverage, by financing a part of the purchase price through the use of debt.
It is not surprising that, after an acquisition, some changes take place, related both to the management of the acquired company, and to the way of carrying out the processes. Although this is not indispensable.
What is a merger of companies?
A merger can be defined as the union of two companies, giving rise to another of a larger size. This process is somewhat similar to what happens with marriage: the separate functioning of each person ceases to exist and they become a greater unit, called a couple.
Usually, this process takes place between companies in the same branch. A priori, what is sought with the merger is not only to increase size, covering more of the market but to improve the efficiency of processes and products, increasing performance.
This process, of course, has repercussions on the organizational functioning as well as on the personnel that are part of the companies involved. One effect that is observed is the merging of departments.
Similarly, this usually means a reduction of staff in some areas. However, in the event that there is a positive impact on the market, and the volume of operations increases, a larger workforce may be required.
In general, several potential advantages of a merger are pointed out; it goes without saying that not all these advantages materialize in all situations.
- Market diversification: although they may be in the same branch, each of the original companies had its own niche; already merged, the horizon expands.
- A greater reach of the brand: a merger between two companies usually becomes a public fact; it is not surprising that when it occurs, notoriety increases.
- Being now a larger company, with greater market reach and greater business opportunities, has an impact on revenue growth.
- Increased efficiency and reduced operating costs: the merger is usually a reason for reviewing the processes, which translates into restructuring, rearrangement or reengineering.
- Sum of experiences: the greatest gain within a merger has to do with the know-how, where each one contributes their own, so the new company is stronger.
- And since both companies are not going to compete with each other, but together, there are fewer market risks.
Difference between mergers and acquisitions
As we have seen, there are differences between mergers and acquisitions of companies, both in the purposes pursued, as well as in their processes and results. Let’s point out:
- Mergers usually take place between companies of the same branch (financial, automotive, pharmaceutical, technology). A recent example is the announcement of the fusion between Orange and More Mobile, both telecommunications companies.
- In an acquisition, a company can acquire another from the same area (for example, Facebook buys Instagram), from a related area (Microsoft acquires Activision Blizzard or Nvidia), or from a completely different one.
- With the merger, a new company is born; in the acquisition, the companies are kept separately, each with its equity.
- The acquisition is a relatively simpler process. As long as the fusion takes longer to execute in practice.
- It could be said that the acquisition ends with the signing of the contract of sale and purchase; while the merger begins right then and there.
Advantages of mergers and acquisitions of companies
Of course, there are also similarities between the two processes. Both in the acquisition and merger of companies there is usually profit growth. And they are also opportunities to expand to other markets, even outside the original territory in which the organization was.
Whether one or the other is better is something difficult to discuss, because each case and situation would have to be analyzed separately. And this is what is commonly done to develop these processes. In fact, previous feasibility and profitability studies are long, because these kinds of moves must be made to win.
And what there is no doubt about is that these are very interesting operations to follow, and they give a lot to talk about within the exciting world of business.