Mergers and acquisitions (M&A) are defined as consolidation of companies. Differentiating the two terms, Mergers is the combination of two companies to form one, while Acquisitions is one company taken over by the other. M&A is one of the major aspects of corporate finance world.
Definition the other i.e. mergers as the absorption of a company by another company. In this case the company that bought the name and identity would continue. Corporate buyers also will take either the asset or liability of the company that purchased. After the merger, the company purchased will be lost/ceased operations.
The acquisitions are takeovers (takeover) of a company by buying stock or assets of the company, the company that bought persists.
Types of Merger and acquisitions
A company can have acquired other companies in several ways, namely:
Merger
On mergers, the directors of the two parties agreed to join with the approval of the shareholders. In General, the merger was approved by at least 50% shareholder of the target firm and bidding firm. At the end of the target firm will disappear (with or without the process of liquidation) and be part of the bidding firm.
Consolidated
After the merger is completed, a new company was created and the shareholders of both parties receive new shares in the company.
The Tender offer
Occurs when a company buys another company's outstanding shares without the consent of the target firm's management, and was called the tender offer because it is a hostile takeover. The target firm will remain as long as there is a rejection of the offer. Many tender offer which was later turned into a merger because of the bidding firm successfully took control of the target firm.
Acquisition of assets
A company buys another company's assets through the approval of the shareholders of the target firm. The acquisition of different divisions. According to them there are only three ways to do acquisitions, namely:
Merger or consolidation
The merger is the merger of the company with other companies. Bidding firm still stood with her identity, and obtain all the assets and liabilities belonging to the target firm. After the merger of the target firm ceases to be part of the bidding firm. The same consolidation with mergers unless the formation of the new company. The two companies are both eliminate the existence of the company legally and became part of the new company, and among the companies in the merger-or me-mergers are not distinguish.
Acquisition of stock
The acquisition can also be done by purchasing the voting stock of the company, can be bought for cash, shares, or other securities. Acquisition of stock can be made by a company from bidding against other companies, and in some cases, the offer is given directly to the owner of the company that sells. This can be adjust with the tender offer. Tender offer is an offer to the public to buy shares of the target firm, file from a company directly to the owner of another company.
Acquisition of assets
The company may acquire other companies by purchasing all of its assets. In this type, it takes a vote of the shareholders of the target firm so that there are no impediments from minority shareholders, such as the acquisition of stock .
While base on the type of company that merge, mergers or acquisitions can be distinguish:
- Horizontal merger occurs when two or more companies engage in the same industry join.
- Vertical merger occurs when a firm acquires a company supplier or the customer.
- Con-generic mergers occur when firms in the same industry but not in the same line of business with the supplier or the customer. The upside is the company could use the same sales and distribution.
d. Conglomerate mergers occur when a company unrelated business merger. The upside is able to reduce the risk.
The reasons for Doing mergers and acquisitions
There are several reasons a company merger or acquisition through mergers, namely:
Growth or diversification
The company that wants to rapid growth, good size, the stock market, as well as the diversification effort can do a merger or acquisition. The company does not have the risk of the presence of a new product. In addition, if expand with mergers and acquisitions, the company may reduce competition or reduce competition.
Synergies
Synergies can be achieve when the merger produces a level of economies of scale (economies of scale). The level of economies of scale occurs due to a mix of overhead costs increase revenues larger than the amount of revenue the company when no merger. Synergies are evident when the company that did the merger are in the same business as excessive labor and can be remove.
Increase the funds
Many companies are unable to obtain funds to do internal expansion, but can obtain funds to do external expansion. The company joins with companies that have high liquidity so as to cause an increase in power and decrease company loan financial obligations. This allows increasing the funds at a low cost.
Add management skills or technology
Some companies cannot develop properly because of the lack of efficiency in management or a lack of technology. Companies that can't make it efficient management and could not pay to develop the technology, can join themselves with companies that have management or technology experts.
Tax Considerations
The company may bring losses to tax up to 20 more years or until the tax losses can be cover. Companies that have tax losses can do acquisitions by companies that generate profit to take advantage of tax losses. In this case the company that acquire the combination will raise incomes after tax income before tax by subtracting from the acquire company. However, the merger not only due to the advantages of the tax, but on the basis of the purpose of the maximize welfare of the owners.
Enhancing the liquidity of the owner
The merger between the companies has allow the company to greater liquidity. If the company is larger, then the stock market will be broader and more easily obtain so that the stock more liquid compare to smaller companies.
Protect themselves from takeover
This occurs when a company becomes a hostile takeover target. Target firm acquires another company, and finance takeover with debt, because the burden of this debt, liabilities of the company being too high to be borne by the bidding firm interest.
Advantages and disadvantages of Merger and acquisitions
The takeover through a merger simpler and cheaper than other takeover.
Shortage of Merger: Comparable acquisition merger has some drawbacks, i.e., there must be approval from the shareholders of each company, while for approval is necessary for a long time.
Advantages
The advantages of the acquisition of shares and the acquisition of assets are as follows:
- The acquisition of Shares is not need a meeting of shareholders. The shareholder's votes so if shareholders do not like the bid Bidding firm. They can hold their shares and not sell to any Bidding firm.
- In the stock Sale, the company that bought can deal directly with shareholders of the company. Were purchase by doing the tender offer. So that it is not require the approval of the company's management.
- Because it does not require the approval of the management and the Board of Commissioners of the company. The acquisition of the shares can be use for the company's takeover of the hostile (hostile takeover).
- Acquisition of assets requires a shareholder vote. But does not require the majority of votes of shareholders as at the acquisition of the shares. So there is no obstacle for minority shareholders if they didn't approve acquisition.
Disadvantages
Loss-the loss of the acquisition of shares and the acquisition of the asset as follows:
- If enough minority shareholders who did not approve the takeover, then acquisition will be null and void. In general, the company's articles of Association specify at least two-thirds (67%) of votes agreeing. To the acquisition so that the acquisition took place.
- If the company took over all shares purchased, then the merger.
- Essentially the purchase of any asset in the acquisition of assets. It should be legally reverse name giving rise to legal costs.
Merger is the merger of the two companies into one company. Where the me-mergers take/buy all assets and liabilities of the company being merge with a company. So me-merger has at least 50% of the shares and the company is in merger-cease operations. Even and the shareholders receive an amount of cash or stock in the new company.
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