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Mergers V Acquisitions: Whats The Difference
Date : 31/01/2021
Mergers
A Merger takes place when two
organisations come together to act, for all intents and purposes, as one single
organisation. It is the unionization of two entities done with the intention of
capitalizing on the strengths, meanwhile eliminating the weaknesses of the
organisations in question.The consolidation, as the joining of two
organisations is referred to, is not an exchange of interests between the organisations
or their owners. No one is paying anyone since nothing is being bought or sold.
It is, instead, a coming together of the assets and liabilities of the parties
involved in an attempt to benefit from the concept of synergy. The ownership of
the newly formed organisation is also shared between the previous owners with
shares of ownership redefined as deemed appropriate by the owners of
organisations involved.With a merger, the organisations
would usually be aiming for a better overall performance by the joint entity
compared with what was being achieved individually by the organisations. While a merger is generally
considered a friendlier venture than an acquisition and for good reason as the
move is mutually beneficial for the majority of the stakeholders, it may leave
a few groups at loss. While the newly formed merged organisation is likely to
experience higher income, for example, each of the organisations will have to
let go some of their employees in order to avoid duplication of roles. With the
aim being increased efficiency, the sections of both organisations deemed
lesser efficient will be eliminated. This elimination may be seen in terms of
the employees let go by each of the organisations. With every merger, it s specific
dynamics will determine the winners and losers. For example, if it s a forward
integration with a manufacturer and a retailor of the same industry joining
forces, there may be little to no changes in the structures of the
organisations as in such a scenario two smaller organisations are simply coming
together to make one bigger organisation, that will subsequently have a better market
performance. Whereas if a manufacturer is merging with another manufacturer,
the production departments like other departments of the merging organisations,
will have to figure out a way of coexisting as a single department. This
however couldn t and wouldn t mean that there will now be two production
managers in the new organisation. So, the question arises who stays and who
leaves? The answer while simple is slightly grim and embedded in reality. As
much as a merger is the joining of two groups, and a supposed symbol of blue
and yellow coming together to make green, one of the organisations will still
have the upper hand. As much as mergers seem beneficial, they are not an easy
or desirable affair for any organisation, as most would prefer to snatch the
success of their competitors than share it with them.One organisation will dominate the
merger and therefore, the employees, the structure, procedures, policies and
methods of this organisation are likely to prevail over those of it s better
half. AcquisitionsAcquisition, also known as a Takeover,
is one organisation taking over another organisation. The organisation taking
over is known as the acquirer and the organisation being taken over is known as
the acquiree. An acquisition is more of a transaction than a merger, as the
acquirer will pay a consideration to the owners of the acquiree. This
consideration is the purchase price of the acquiree, usually comprising of shares
and cash. The consideration may also have a contingent component which is only
payable in case of the acquired organisation meeting a certain threshold
performance, post acquisition. Being acquired could mean one of two
things for an organisation. Either the organisation ceases to exist and it s
assets and liabilities get absorbed into the acquiring organisation or, the
organisation continues to operate as it was doing so, pre-acquisition, only now
being recognized as a subsidiary of the acquiring organisation. This would mean
that the acquired organisation is now controlled and managed by
owners/directors of the acquirer. Apart from this, there are no major changes
expected in the middle and lower level structures of the organisation. If the acquirer
is satisfied with the administrative and operational efficiency of the acquiree
they may not introduce any changes at all. An acquisition may take place as a
result of an organisation facing financial problems, declining performance
and/or withdrawing investors. Any of these circumstances would present an
opportunity for an interested organisation to acquire the struggling
organisation for a relatively low amount of consideration. The acquirer will
usually do this in order to get a hold of the assets of the struggling company which
could be useful to the acquirer. Examples of such assets include copyrights
held by a media production company, research papers, specialized
machinery/equipment, permits, etc.Another reason for acquisition could
be expansion by the acquirer into acquiree s industry, as it would be easier
for the acquirer to join the industry by acquiring an already established
organisation with brand image and a loyal customer base, instead of starting
from scratch.
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