Mergers and Acquisitions: Types, Process, and Difference Between Them!

Table of Contents

• What are Mergers and Acquisitions?
• Types of Mergers and Acquisitions
• Types of Mergers
• 10 Steps of M&A Process
• How Do Mergers Differ From Acquisitions?
• Conclusion

What are Mergers and Acquisitions?

A merger meaning occurs when two entities combine to form one company. Shares of companies that will join will cease to be traded and issued on behalf of the new entity. In comparison, acquisition involves one company buying the assets of another company. The target company’s assets belong to the buyer, but the acquired company does not change its name or structure. The shares of the acquired entity will belong to the buyer and cease to trade under the previous name. 

Successful mergers and acquisitions usually occur due to the company’s more remarkable ability to convince target shareholders to merge or sell their shares. In the investment industry, news of mergers and acquisitions can lead to a sudden spike or drop in a company’s stock value. This is what makes mergers and acquisitions important in economic and business markets.

Types of Mergers and Acquisitions

There are still many people who think that mergers and acquisitions are the same things. However, in reality, the two are different things. You should know some common types of transactions still in the scope of mergers and acquisitions. The type of transaction exists depending on the economic function and the purpose of the merged company. Here are the types of mergers and acquisitions: 

Mergers

A merger meaning is the agreement of two or more independent business companies into one company. Usually, a company can do a merger by buying another company’s assets through cash payments or by buying its shares. The main reason companies merge is to unite the resources and strengths of the two companies to conduct business operations better. In addition, another reason is to reduce the competition that exists in the market. 

Acquisitions

An acquisition occurs when one company buys most of the shares of another company to gain control of that company. The reasons a company makes an acquisition can be in the form of seeking economies of scale, diversification, more significant market share, increased synergies, and cost reduction. 

Consolidations

Business consolidation refers to combining two or more companies into one new entity. This type is considered transformative because it creates a new corporate structure and adopts the best practices of the companies involved. One of its main advantages is that it reduces operational and overhead costs and can streamline business processes and reduce operational costs. 

Tender offers

A tender offer is an offer to buy part or all of a shareholder’s shares. The tender offers invite shareholders to publicly sell their shares at a specific price within a certain period. Their price is usually higher than the market price. It often depends on the minimum or the maximum number of shares sold.

Acquisition of assets

Asset acquisition is a type of acquisition by purchasing a company’s assets. In asset acquisition, you only acquire assets that have been identified and approved by the target company. This transaction will give you flexible capabilities because you can choose to buy certain assets so that your risk is small. One important remark in acquisition of assets is that you need the outstanding Asset Management Software to help you manage and track your assets automatically.

Management acquisitions

This type of acquisition is a transaction where a company’s management team buys most of the assets, shares, and business operations and takes control of the company. Management acquisition is also known as a management-led buyout (MBO). The reason for this purchase is for the company’s profitability to increase and an effort to simplify business operations.

Types of Mergers

In principle, a merger is a new company formed due to a combination of two or more companies. Both companies sell shares while issuing other shares that differ as new companies result from mergers. Although the principle is the same, mergers have many types. Here are some types of mergers you need to know:

• Horizontal merger: This merger involves the merger of two entities in the same industry. Horizontal mergers often involve competitors who want to capture a larger market share and achieve economies of scale.
• Vertical merger: is a merger between two businesses that sell different products but share the same supply chain. The goal is to increase efficiency.
• Conglomerate merger: The process by which two companies that have nothing in common become one to reduce risk, share assets, and benefit from scale. 
• Market-extension merger: the merger of two companies in the same industry but in a different market to get more customers. Companies typically sell the same products and services, so mergers aim to gain a more extensive client base. 
• Product-extension merger: involves two entities selling related products in the same industry. These entities often share similar production processes, supply chains, and distribution channels. The goal is to allow the two companies to group their products to increase market access and profits.

10 Steps of M&A Process

Once you know the definition and type of mergers, it’s time for you to know how to do mergers and acquisitions. This is important for you to prepare the transaction more carefully, and the merger process runs smoothly. Here are the ten steps of the M&A process you need to do:

• Creating merger and acquisition strategies. These strategies must address what your company hopes to achieve in the M&A deal.

• Develop search requirements. Set the key criteria to help you identify your target potential companies.

• Target identification. You must search and evaluate your potential target companies.

• Acquisition planning. You can begin to make contact with the companies that you are targeted.

• Valuation. This phase will help you to properly value the suitability of the target company with your plan.

• Negotiations. After you do the valuation to your target company, you can move to the negotiation phase for further discussion.

• Conduct due diligence. This step will help you verify the target company’s value and identify their abilities because of the detailed examination.

• Buying and selling agreements. After you completed conducting due diligence, the next step is executing the final contract for sale and the purchase agreement.

• Discussion of financing options. You will have explored the financing options for the deal.
• Closing. After the M&A deals close, you can work together with the management team on the process of the merging of two companies.

Related articles: Discover 10 Effective Business Expansion Strategies

How Do Mergers Differ From Acquisitions?

One big difference between a merger and an acquisition is that merger is the results from a mutually beneficial agreement between the two parties. On the other hand, an acquisition is usually considered a hostile takeover. Another difference is related to legality. Mergers involve many legal formalities, so these transactions have a higher degree of difficulty than acquisitions, which tend to be easier and faster. 

In addition, what distinguishes mergers and acquisitions is the level of authority and management in the company. The two companies had an equal level in the merger, and there were no major changes in their management structure. On the other hand, the company that makes the acquisition has great authority because it is the largest shareholder in the company. In addition, in the acquisition, there are many changes in the company’s structure due to the takeover of management. 

Conclusion

Mergers and acquisitions involve processes that can take a long time until all parties agree to them. A merger is the agreement of two or more independent business companies into one company. In comparison, An acquisition occurs when one company buys most of the shares of another company to gain control of that company. Mergers and acquisitions are important in economic and business markets. However, the process of completing a merger can be complicated. There are many steps to take, especially after a merger, such as legal transactions and complicated administration at every step. Therefore, you need the proper support with the number #1 HRM Software in Singapore from HashMicro.

EVA HRIS Essentials software is the integrated HRM system specifically created to simplify the administrative process in your merger company so that it does not take a lot of time and effort. Using this software, you do not need to do complicated manual administration work. In addition, you can track the overall operational activities of employees and HR management of merger companies more organized. HashMicro also provides the HRM software pricing scheme to help you know better about the system with the free demo, consultation, and software calculation. Now, immediately use HashMicro’s fully-featured HRM system to get a series of excellent benefits for your merger business.