Merger and Acquisition 101
At a time of unusual turmoil and an increased focus on innovation, keeping up with market change is an everyday attempt must-to-do. If one asks you the quickest way to do it? Merger and acquisition is probably the answer. They have a similar concept, creating innovation and raising the company’s profit, but don’t get it wrong. They have entirely different processes.
Image 1: Merger and Acquisition in Process
Source: Patriot Software, 2021
A merger happens when two companies combine to form a new company. Those two companies try to expand their market share, diversify products, decrease risk and competition, and grow their profits. According to an article created by Business News Daily, common types of company mergers include conglomerates, horizontal mergers, vertical mergers, market extensions, and product extensions.
In Indonesia, you must already have heard about GoTo. Gojek and Tokopedia carried out the merger activities. GoTo’s merger is classified as a vertical type of merger. As Gojek and Tokopedia work in the same industry, they both rely on information technology-based to support their business, but they have differences in production and distribution processes. Gojek with its ride-hailing service as well as financial services and Tokopedia with its e-commerce system. This merger aims to expand related businesses by supporting each other in their respective fields. We can see it when the financial system by Gojek, known as Gopay, is used as a primary payment integrated directly into the Tokopedia application itself. GoTo will also combine e-commerce, freight forwarding, food delivery, transportation, and financial services. In this way, Goto created the largest digital consumer platform in Indonesia that serves most household consumption needs.
Done with a merger activity, now let’s move to acquisition things. AccordingAcquisition, according to the Corporate Finance Institution, Acquisition is defined as a corporate transaction where one company purchases another company’s shares or assets, either in a portion or in whole. If a company buys more than 50% of a target company’s shares, it gains authority over that company. In return, the acquiring company has the advantage of having to have more power and domination to construct decisions regarding the acquired assets without demanding any shareholders’ approvalapproval of shareholders from the target company.
For example, Facebook, which has changed its name to Meta, acquired Instagram in 2012 for $1 billion because Zuckerberg saw that Instagram was becoming a threat to the company, as it could siphon the business away in the future. Rather than compete with it, Facebook bought a straightforward yet useful solution. Now, Instagram is not seen as a brand itself but as part of a larger company, namely Facebook. Every activity is under the control of Facebook’s management. As a powerful strategy for increasing company growth rapidly, it was a proven method because now Instagram is currently valued at $100 billion, yielding a 100-fold valuation increase. It does not rule out the possibility that its valuation will gain more day by day.
In short, the main difference between these company activities is mergers support each other company-related and have a combination of business models to achieve common goals while there is no supporting each other and “I got your back” symbiosis in the acquisition, only growth and profit as the highest destination of the acquiring company. Nothing good or bad in this game, only usefulness, so both are important strategies for the sustainability, development, and growth of the company.
Written By: Rosella Veltin
Accenture. Move Your M&A with Speed and Certitude. Retrieved April 21, 2022, from https://www.accenture.com/us-en/services/mergers-acquisitions-index
Schooley, S. 2021. What You Should Know About Company Mergers. Business News Daily. Retrieved April 21, 2022, from https://www.businessnewsdaily.com/15786-company-mergers.html
Shemi, H. 2021. 5 Jenis Merger yang Umum Terjadi di Dunia Bisnis. IDN Times. Retrieved April 21, 2022, from https://www.idntimes.com/business/economy/helmi/5-jenis-merger-yang-umum-terjadi-di-dunia-bisnis/2
What is An Acquisition?. Corporate Finance Institution. Retrieved April 24, 2022, from https://corporatefinanceinstitute.com/resources/knowledge/deals/acquisition/
Safitri, K. 2021. Gojek-Tokopedia Merger Jadi GoTo, Begini Model Bisnisnya. Kompas. Retrieved April 25, 2022, from https://money.kompas.com/read/2021/05/17/170855726/gojek-tokopedia-merger-jadi-goto-begini-model-bisnisnya?page=all
Fitzgerald, W. 2021. Analysis of Facebook’s Corporate Strategy: An Instagram and WhatsApp Perspective. LinkedIn. Retrieved April 25, 2022, from https://www.linkedin.com/pulse/analysis-facebooks-corporate-strategy-instagram-fitzgerald-phd/