Acquisition or Merger

¶ … merger usually occurs when both companies are of relatively equal strength. The ideal behind this is that a merger would benefit both companies equally, merging the best elements of both companies in order to form a single company that is stronger than either on its own. The new company can then benefit in a variety of ways. Staff reductions for example means job losses, but for the overall revenue of the company, this is a benefit in salary savings.

A merged company, being larger in scale than either of the companies before the merge, can also save on goods and equipment purchases. Orders in such cases become larger and can thus be negotiated with the seller. Another benefit is technological advances that become part of the newly merged company. A competitive edge can easily be established by merging the technological elements of both companies, and using the combined brainpower of technical personnel. Furthermore, when a company merges with another, market reach and industry visibility improve.

Revenues and earnings grow by the merged company's increased reach and productivity. Furthermore capital can be raised for investments yielding higher returns. Possible problems that may arise in a merger situation include disagreement between the owners regarding the running of the combined business or the term of involvement in the business for each owner. Uncertainty created in this way can negatively affect the new company's general value and thus defeat the initial purpose of the merger. 2 There are several elements that indicate whether a merger is working or not.

The most important indicator is the purpose for which the merger takes place. Mostly, the purpose of the merger is financial benefit. When the merged company experiences a rise in revenue and other financial benefits, it can be seen as an indicator that the merger is working. Another important element is synergy. It is important that the cultures of the merged business be compatible and synergistic. When all personnel function harmoniously, this can then also be used as an indicator that the merger is working as planned.

B.1 The advantage of an acquisition, as opposed to a merger, is that the companies continue their separate function and identity, while drawing on the best elements of both for financial and other advances. Furthermore this means that an established identity in the business world would remain, while only ownership changes. Thus there is no need for expense on extended advertising to ensure that the new and old identities are exchanged. There is also a marginal advantage for existing personnel.

While an acquisition means change, it is likely that fewer jobs would need to be terminated when companies remain separate. A related aspect is the cultures of each company and the resultant synergy. When companies remain separate, culture compatibility is not as crucial, and synergy is easier to achieve. There is still however the danger that company owners may disagree regarding crucial aspects of management. Poor planning before the acquisition is often the culprit in such situations.

Another disadvantage of acquisitions rather than mergers is that there is less global control of the functioning in both companies. The danger is then that the synergy between companies could be lost and uncertainty results. 2 Once again, synergy is an important aspect of acquisitions. When both companies function harmoniously towards the unified goal of increased.