There are several business strategies that can be adopted to achieve financial gains, promote growth, expand the market served, and so on. Among them are mergers and acquisitions.
The idea behind mergers and acquisitions is to combine the operations, resources, and assets of organizations. However, mergers and acquisitions are distinct concepts, and consequently, their dynamics and results also differ. But do you know the differences between mergers and acquisitions? We've prepared this content to tell you.
In this article, we explain what mergers and acquisitions are, why companies adopt these practices, and the impacts they have on business. Keep reading to learn more.
Mergers and acquisitions are also known as M&As. These two practices are quite common in the business world and can be carried out in various sectors, such as industry, healthcare, civil construction, beauty and others.
They promote corporate restructuring, which allows companies to be reshaped, resulting in corporate giants. Therefore, mergers and acquisitions often cause significant economic changes.
But, as we said in the introduction, these are different strategies, since in a merger two companies merge, and in an acquisition one is absorbed by the other. Learn more below.
In a merger, two or more companies that operate independently combine to form a single company. In this case, the original companies are dissolved so that the new company can acquire legal personality and, from the date of the merger, begin its economic activities.
This process involves the integration of operations, resources, and assets of the companies involved. Including, the employees are usually maintained. But it may happen that, instead of a new company being created, one of the companies is expanded.
There are also different forms of fusion:
By the name, you can probably guess what it means. This strategy consists of a negotiation in which one company (acquirer) acquires another (target company) by purchasing its shares, assets, and even a specific unit of the company.
For the acquisition to happen, the process usually includes several steps, such as:
Acquisitions are generally carried out with the aim of achieving advantages and benefits. However, these operations also present risks. Because it's a highly complex process, good planning and careful execution are essential.
There are several reasons why companies adopt merger and acquisition strategies. Below, we'll discuss some of the most common reasons.
The companies involved in the merger or acquisition each have their own customers and market segments. When the merger occurs, the resulting company ends up absorbing the other's market share.
Therefore, these strategies can be adopted by organizations that want to expand their market presence without starting from scratch. After all, whether through merger or acquisition, it's possible to continue the work a company has already been doing and begin operating in that portion of the market immediately.
Here, we follow the same logic as the previous topic. In mergers and acquisitions, each company launches its own solutions, whether products or services, onto the market.
When companies combine, or when one acquires another, we see that assets, resources, and operations are absorbed, including the solutions that the company provides to its own target audience.
In this way, the resulting organization, or the one that acquired another company, acquires the rights to the products and services involved in the merger. This diversifies the portfolio by offering different items, while incorporating the consumer audience for these products or services.
A merger or acquisition may also occur with the aim of fostering collaboration and cooperation between the companies involved. This allows both companies to achieve superior results by joining forces to promote the growth and success of both organizations.
It's worth remembering that mergers and acquisitions can involve two or more companies. Regardless of the number of companies, the parties involved may want to merge to strengthen their market presence, achieve a more significant presence, promote financial health and stability, among other objectives.
Whether through mutual collaboration or the purchase of a company, mergers and acquisitions can occur with the aim of gaining access to new resources and technologies. In a merger, both companies gain similar advantages, while in an acquisition, one party benefits more.
In any case, access to new resources and technologies allows the companies involved to improve their processes, whether they are management, operational or otherwise. This makes it possible to increase productivity, efficiency and competitiveness.
When a merger or acquisition occurs, it tends to impact the entire economic landscape of the participating companies. At the same time, the repercussions are felt in the market, in the offering of solutions provided, and in the way companies meet the needs and relate to the consumer.
Of course, major changes in this regard don't always occur. But behind the scenes, mergers and acquisitions may or may not be well-received by partners, investors, and other stakeholders involved with each company—which is why there are advantages and disadvantages to these processes.
In terms of benefits, you've seen that companies can achieve greater growth and stability, as well as modernize their processes, cooperate mutually, expand their market presence, among other examples.
Disadvantages can manifest when the partnership isn't as successful as expected. Some of the factors that can lead to negative results are a lack of planning, problems faced by one of the companies, and even rejection of the process by investors or the consumer market.
In the case of acquisition, if there is no good analysis and planning, the absorption of a new organization may end up bringing more costs, work, and concern rather than advantages for the acquiring company. This risk is greater when there is debt or if the acquired company is experiencing internal problems.
Therefore, before investing in a merger or acquisition, it's important to thoroughly analyze the strategic objectives and thoroughly study the company with which you're negotiating. After all, the goal is to achieve benefits and advantages, which requires a strong market acumen to identify opportunities and potential risks.
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