The following is a complete discussion of mergers and acquisitions which will discuss: Definition, types, benefits, reasons, advantages and disadvantages, legal basis, requirements, and procedural steps in conducting mergers and acquisitions. Most importantly, Darta Consulting will provide solutions in the form of merger and acquisition lawyers and legal consultants.
Definition of Mergers and Acquisitions
A merger is a process of diffusion or a merger of two companies, one of which remains standing with the name of the company while the other one disappears with all of its name and wealth added to the company that remains standing. Where as an acquisition is a takeover (takeover) of a company by buying shares or assets of the company, the company being purchased remains.
Types of Mergers
1. Horizontal merger
Horizontal margin is a merger conducted by a similar business (same business). One of the main objectives of a horizontal merger is to reduce competition or to increase efficiency through a combination of production, marketing and distribution activities, research and development and administrative facilities. for example a merger between two bakeries, a shoe company.
2. Vertical merger
A vertical merger is a merger that occurs between companies that are interconnected, for example in successive production flows. Vertical mergers are carried out by companies that intend to integrate their business with suppliers and / or product users in order to stabilize supply and users.
3. Congeneric mergers
A congenital merger will involve companies that are related but are not producers of the same product or companies that have a supplier-producer relationship.
4. Conglomerate Merger
Conglomerate Merger is a merger between various companies that produce a variety of different and unrelated products, for example a shoe company merging with an electronics company or a car company merging with a food company. The main goal of a conglomerate is to achieve fast growth of the business entity and get better results. The trick is to exchange shares between the two companies that are put together
Type – Type of Acquisition
1. Share Acquisition
The term acquisition is used to describe a sale and purchase transaction of a company, and the transaction results in the transfer of ownership of the company from the seller to the buyer. Share acquisition is one of the most common forms of acquisition encountered in almost every acquisition activity.
2. Asset Acquisition
If a company intends to own another company, it can buy part or all of the assets or assets of that other company. If the purchase is only part of the company’s assets it is called a partial acquisition.
A simple asset acquisition can be said to be a sale and purchase (asset) between the party making the asset acquisition (as the buyer) and the party acquiring the asset (as the seller). If the acquisition is made with cash payments. Or an exchange agreement between the acquired asset and another property owned by the party making the acquisition, if the acquisition is not made by cash.
Benefits of Mergers and Acquisitions
1. Complementary
Horizontal merger of similar or more companies can lead to synergies in various forms, for example: product expansion, technology transfer, strong human resources, and so on.
2. Pooling strength
Companies that are too small to have important functions for their company, such as a research and development function, and will be more effective if they join other companies that already have these functions.
3. Controlling Control Over Competition or Other Companies
Merger of businesses among similar companies will result in centralized control, so as to reduce competitors.
4. Save the company from bankruptcy
For companies that have liquidity and are pressured by creditors, decisions about mergers and acquisitions with strong companies will save the company from bankruptcy
Reasons for Mergers and Acquisitions
1. Desiring growth or diversification
Companies that want fast growth, in terms of size, stock market, and business diversification can carry out mergers and acquisitions. The company does not have the risk of new products. In addition, if it expands with mergers and acquisitions, the company can reduce its competitors or reduce competition.
2. Synergy
Synergy can be achieved when the merger produces economies of scale. The level of economies of scale occurs because the combination of overhead costs increases revenue that is greater than the total revenue of the company when it is not merged. Synergy is evident when companies that are merging are in the same business because redundant functions and labor can be eliminated.
3. Increase funds
Many companies cannot obtain funds for internal expansion, but can raise funds for external expansion. These companies merge with companies that have high liquidity, which causes an increase in the company’s borrowing power and a decrease in financial liabilities. This allows for increased funding at a low cost.
4. Add management or technology skills
Some companies cannot develop properly because of lack of efficiency in management or lack of technology. Companies that cannot streamline their management and cannot pay to develop their technology can merge with companies that have expert management or technology.
5. Reasons for tax considerations
Companies can carry tax losses over the next 20 years or until the tax losses are covered. Companies that have tax losses can make acquisitions with companies that generate profits to take advantage of tax losses. In this case, the acquiring company will increase the combined income after tax by deducting the pre-tax income of the acquired company. However, the merger is not only due to tax advantages, but based on the objective of maximizing the welfare of the owner.
6. Increase owner liquidity
Mergers between companies allow companies to have greater liquidity. If the company is larger, the stock market will be wider and stocks will be easier to obtain, so that it is more liquid than smaller companies.
7. Protect yourself from expropriation
This occurs when a company becomes the target of an unfriendly takeover. The firm’s target is to acquire another company, and finance its takeover with debt, because of this debt burden, the company’s liabilities are too high to be borne by interested bidding firms.