Definition of Acquisitions: Purpose, Benefits, and Classification of Acquisitions

What is an acquisition ? In general, the definition of acquisition is the recognition of a company, both public and private organizations carried out by the acquiring company.

There is also a mention that the definition of acquisition is a takeover of the ownership of shares or assets of a company (acquiree) by other companies (acquirer) .

There are many reasons why a company is acquired by another company. In addition to economic motives (profits), the reason for the acquisition of a company is to accelerate the growth of business units without having to build themselves from scratch.

Also read: The Meaning of Consolidation

Definition of Acquisition According to Experts

In order to better understand what an acquisition is, then we can refer to the opinions of the following experts:

1. PS Sudarsanan

According to PS Sudarsanan (1999), the notion of acquisition is an agreement, in which a company buys another company’s assets or shares, and the shareholders of other companies being targeted for acquisition will cease to be owners of the company.

2. Made Sudana

According to Made Sudana (2011), the notion of acquisition is the merger of two companies in which the acquisition company buys a portion of the acquired company shares, so that the control of the acquired company management is transferred to the acquisition company, while both companies continue to operate as a separate legal entity .

3. Brealey, Myers, and Marcus

According to Brealey, Myers, & Marcus (1999), the notion of acquisition is a takeover of a company by buying shares or assets of the company, and the company being purchased remains.

4. Michael A. Hitt

According to Michael A. Hitt, the notion of acquisition is acquiring or buying another company by buying the majority of shares from the target company.

5. Charles A. Scharf

According to Charles A. Scharf, an acquisition is a transaction in which the buyer (company) obtains part or all of the assets or business of the seller (the company), or all or part of the shares or other securities of the seller, where the transaction is carried out based on agreement. between the buyer and the seller.

6. Summer N. Levine

According to Summer N. Levine, the definition of an acquisition is a transaction that occurs between two parties, in which the buyer ultimately gets and becomes the owner of most or all of the wealth of the seller.

7. Statement of Financial Accounting Standards (PSAK)

According to PSAK No. 22, the meaning of acquisition is the acquisition of company ownership by the acquirer (acquirer), resulting in the transfer of control over the acquired company (acquiree).

Also read: Understanding Mergers

Purpose of the Acquisition

Definition of acquisition and its purpose

In making acquisitions, of course there are objectives to be achieved by the parties concerned. In general, the following acquisition objectives are as follows:

1. Add Company Synergy

In general, acquisitions are made to increase profits or added value of companies that participate in the acquisition process, both acquisitors and those acquired.

2. Expanding Market Share

Acquisitions are also often done because a company wants to expand its market share because the acquired company already has a large enough market share.

3. Protecting the Market

Enough business competition is one of the reasons for the acquisition. When a company wants to strengthen its position in a particular market, acquiring a competitor is considered to protect the market it wants to control.

4. Acquiring Specific Products

One way to develop a company’s business can be done by producing new products. When other companies produce quality and desired products, these products can be acquired for later development.

5. Strengthening the Main Business

The takeover of other companies engaged in the same business will ultimately strengthen the core business of a company so that it becomes stronger and bigger.

Also read: Definition of the Company

Benefits of Acquisitions

Benefits of Acquisitions

In line with the purpose of the acquisition, every company that makes an acquisition will get several benefits. According to Bradley T Shapiro (1991: 933), the benefits of acquisition are as follows:

  1. The company will experience a faster growth rate in business now than it does internally.
  2. Acquisition companies can reduce business competition by buying several business entities to combine market power and competition restrictions.
  3. Acquisition companies can enter new markets for sales and marketing now that have not been penetrated.
  4. An increase in managerial skills, namely managerial assistance in managing the assets of business entities.

Also read:

  • Understanding Firm
  • Definition of Organization

Acquisition Classification

Acquisition Classification

In general, acquisitions can be classified into two broad groups, namely based on the object of acquisition or basic form, and based on the type of business. Referring to the definition of acquisition above, the types of acquisitions are as follows:

I. Based on the Basic Form or Object of the Acquisition

In an effort to take over another company, there are 3 basic procedures performed by a company, namely:

1. Consolidation or Merger

Merger is the process of merging two or more companies, where the merger results in a new company name.

Consolidation is the merger of two or more companies, where all the companies that join are lost and bring up a joint company with a new name.

2. Stock Acquisition

Share acquisition is the purchase of shares of a company, either in cash or replacing them with other securities. For example bonds or other shares.

3. Acquisition of Assets

Asset acquisition is the purchase of assets of a company where the aim is to prevent the company from having the possibility of having minority shareholders.

II. Based on Relation to Type of Business

While acquisitions based on relevance to the type of business can be done in three ways, namely:

1. Horizontal Acquisition

Horizontal acquisition is a takeover of a target company that has the same line of business so as to increase market share. In other words, this acquisition will kill competing companies, both competitors in production and marketing.

2. Vertical Acquisition

Vertical acquisition is a takeover of a company that is still in a production chain in which the aim is to ensure the supply and sale of goods.

3. Acquisition of Conglomerates

Acquisition of a conglomerate is a takeover of another company that is not related to an acquisition company, both horizontally and vertically. The purpose of this takeover is to support the acquisition company and strengthen the condition of the company’s portfolio group.

Also read:

  • Definition of Assets
  • Understanding of Accounting

Thus a concise explanation of the meaning of acquisition, objectives, benefits, classification of acquisitions, and their advantages and disadvantages. Hopefully this article is useful and broadens your horizons.

 

by Abdullah Sam
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