You must have accidentally come across the term M&A somewhere while reading articles about business and economics. This is an important concept you need to understand if you are a business owner, or are looking to make a start-up of your own.
So what is M&A? What are the potential benefits as well as risks when doing business mergers? Discover together with Malu in this article:
M&A (Mergers and Acquisitions, roughly translated as mergers and acquisitions) is a concept commonly seen in business that refers to the acquisition, or merger, between two business entities into a single independent entity. The goal of this combination is to promote the strengths of both sides.
When two businesses combine, their strength will certainly be much better than having two individuals operate independently and compete with each other.
M&A – merger occurs when two companies decide to come together, to operate together under one business entity. This transfer and merger only takes place when each company participating in the merger has the same operating scale and realizes each other’s strengths. general business activities, such as sales, size, and overall performance.
Mergers – Mergers
This merger between companies is generally quite “friendly”, under the consensus of both parties. As a result of the merger, the two companies are equal in terms of capital in the new business entity (which is the result of a merger between the two).
Acquisitions – Acquisitions
A takeover, on the other hand, is the acquisition of a business entity by a company. Sometimes, acquisitions are peaceful, but other times they are turbulent, and become the subject of public debate.
Hostility or peace depends largely on whether the working parts of the acquiring company will continue to operate in the new business entity, or be wiped out shortly thereafter.
Often the result of both these processes is the same: the two business entities become a single new business entity. Only the relationship between the two companies is different, and a lot depends on the story behind it.
The benefits of M&A activities in terms of expanding the scale and improving the efficiency of participating enterprises are indisputable, such as:
1. Improve economies of scale
Specifically, with a larger enterprise, they can purchase materials in larger quantities than before. As a result, the cost of buying raw materials will be reduced (because businesses have the right to better regulate prices when buying more materials).
2. Increase market share
If two M&A businesses operate in the same industry, the combined resources of both companies will help them gain a larger share of the market.
3. Improve the distribution capacity of goods and products.
By increasing geographical influence, new businesses can completely expand their distribution network, reaching more customers.
By reducing personnel, new businesses can completely save on human costs, which account for a significant part in the cost structure of the whole enterprise.
5. Improve the quality of human resources in the company.
The combination of the human resources of both businesses can bring unexpected benefits – The human resources are all converged in the new enterprise entity.
6. Optimizing corporate financial resources.
The financial expansion of new businesses gives them many opportunities to invest in large projects.
Despite the many benefits, M&A activities can contain many potential risks:
1. Buying another business requires businesses to spend a huge amount of budget, especially those who don’t want to “give themselves up”.
2. Corporate justice issues may be encountered, especially for large enterprises that have great influence on the market. The Disney-Fox merger could be an example of the judicial problems behind it.
3. Opportunity cost that businesses miss, like instead of spending money to buy another business, they can completely invest in more attractive business projects.
4. Negative market reaction after the merger/acquisition, be it a drop in stock price, or public disapproval.
M&A is now increasingly becoming a new effective business strategy, helping businesses quickly expand their operation scale, supply scope of goods/services, improve talent quality and optimize resources. financial strength in the new enterprise.
Because it takes a large budget, businesses need to consider carefully before making a merger / acquisition offer to their partners.