A lot of people think that mergers and acquisitions are the same thing. In fact, there are some fundamental differences in mergers and acquisitions that can be categorized as two different things. But unfortunately, many don’t understand this well.
To help provide insight into this, here are some explanations of mergers and acquisitions. For more details, the difference between merger and acquisition is as explained below:.
1. Definition
The differences between mergers and acquisitions by definition are as follows. Merger is a condition where two different companies decide to merge and then form a new business. Where in this case the parent company will be maintained.
On the other hand, acquisition is a step by one company to take over another company. This is usually done by buying shares. So that the acquired company will automatically be owned by the company that bought it.
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2. Company Existence
Difference Between Merger and Acquisition (source: Freepik).
There are also differences in mergers and acquisitions regarding the existence of the company. It is also necessary for entrepreneurs to know. The difference between the two lies in the company’s condition afterwards. Companies that do the merger will become a new company.
It is different from the companies that have been acquired. The company will remain and will not change into a new company. But the only difference is the status of share ownership. Because the company being acquired is already owned by the new owner.
3. Operation
Furthermore, from an operational point of view, there are also differences between mergers and acquisitions that are important to note. So that entrepreneurs can determine the appropriate steps for the operations of companies that carry out mergers and acquisitions.
In a merged company, generally the operating capacity of the new company will be the same as the previous company. Because it could be that the two companies that have merged have the same capacity.
But in acquisitions, it is generally done by large companies against smaller companies. The goal is to have different operational capacities so that the company being acquired can follow the directions of the company that made the acquisition.
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4. Company Name
As previously mentioned, a merger is the merging of two companies. Automatically when a new company is formed, the company name will change. While the difference between a merger and an acquisition is that when an acquisition occurs, the old company name will not change. The acquisition only changes the ownership of the shares. Thus, it can be indirectly ensured that the acquired company will not change its name to a new company.
5. Purpose
The difference between mergers and acquisitions is based on their objectives. Generally, companies that do mergers aim to reduce operational costs. In addition, to increase the number of targeted markets and consumers. So a merger automatically helps two companies become one to grow bigger.
Unlike the acquisition. The purpose of the acquisition is to maintain the company’s continuity. One of them is by adding product variations. This allows the old company to stay in the middle of the market, and have more innovations to improve its business for the better.
6. Legality
Difference Between Merger and Acquisition (source: Freepik).
A further difference between merger and acquisition is in terms of law or legality. This is an important point for the shareholders or the founders of the company. Mergers generally will go through a longer and convoluted administrative process. Merging two companies into one requires an administrative effort which is not easy. Because from a legal point of view, it has to be reorganized regarding the authority and rules of two companies that have merged into one.
On the other hand, acquisition is much easier. By making an acquisition, the acquiring company will automatically become the owner of the acquired company. So in terms of administrative processes, the company only needs to transfer assets and change the name to the new owner.
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7. Authority
It is important to know the differences in authority within companies that carry out mergers and acquisitions. Because the authority within the company is a legally registered matter. Especially regarding the main leadership who is entitled to the company later.
In a merger, the authority of the two companies being merged will be the same. So that they can provide mutual guidance. However, in an acquisition, the company making the acquisition will have higher authority. So that the acquired company must fully carry out the authority.
8. Management
The difference between a merger and an acquisition in terms of management is also something that business people should know. Moreover, management is an essential element in running a business. In general, the management of the merged company will be replaced by a new management. This is due to the change in the status of the merged company to a new company. It is different with acquisitions where the company’s management may remain the same. Because in the acquisition the existence of the company remains and does not change at all.
Those are some of the differences between mergers and acquisitions in business which are important to understand. By understanding the difference between mergers and acquisitions legally or according to other definitions, business people will no longer be confused about determining the right step.
