Definition of Acquisition in Business – Has Sinaumeds ever heard of the term acquisition? For some people, acquisition is a term that is unfamiliar or rarely heard of. However, in general the term is a process connoted for an organization or non-public. If based on KBBI, an acquisition is a transfer of ownership of assets or companies, both in the banking industry and taking over ownership of assets or companies.
In the business world, acquisitions will never be separated, especially for startup businesses. Acquisition is one way for a business to grow rapidly. Likewise, big challenges can also arise from steps that look similar to mergers.
Definition of Acquisition
Acquisition is one of the steps to buy part or all of a company, whether it’s from its shares or assets owned. Later, buyers or so-called acquirers will gain control of the companies they acquire. This method is usually done by a large company for startups. But sometimes that’s not always the case. In essence, an acquisition is a transfer of power that occurs in a company that controls assets or shares.
Acquisitions can be said to be a good move with or without approval. Under certain circumstances, the acquiring company may instruct the acquired company to make an acquisition provision. If the acquiree does not agree with these terms, the acquisition will not occur. Whereas in other conditions, the acquirer can also use a proxy vote so that the acquiree agrees with the acquisition plan. Proxy Vote is a condition in which the acquirer persuades the acquiree shareholder to replace its board of directors with people who agree with the acquisition plan.
Definition of Acquisition According to PSAK No. 2 Paragraph 08 of 1999
According to PSAK or the Statement of Financial Accounting Standards, an acquisition or acquisition is a business or business combination in which one of them, namely the acquirer or acquirer, gains control over the company’s operations and net assets acquired by providing certain assets, issuing shares, and recognizing an obligation.
Definition of Acquisition According to Michael A. Hitt
Acquisition is one way to buy or acquire another company by buying most of the shares in the target company.
Definition of Acquisition According to PS Sudarsanan
Acquisition is an agreement, in which the company buys shares or assets from another company and the shareholders of the company will be the target of the acquisition. So that they will stop being the owner of the shares or the company.
Definition of Acquisition According to Macell Go
Acquisitions are often referred to as a capital role investment. Where the acquisition is the mastery of a portion of the shares of another company that is a subsidiary. Through the purchase of these shares, the voting rights of the subsidiary companies in a material amount are more than 50%. Based on the explanation above, an acquisition can be interpreted as taking ownership of a company by another company by buying all or part of its shares. Where the company that buys these shares has a goal, namely to develop and advance the company.
Definition of Acquisition According to Summer N. Levine
According to Levine, an acquisition is a transaction activity that occurs between two parties. Where the party making the purchase will become the owner of most or all of the assets of the selling party.
From the explanation above, can an acquisition be called a merger of two companies like a merger? The answer is of course not. To better understand, here are the differences between acquisition and merger.
The difference between Mergers and Acquisitions
Many people think that acquisitions are the same as mergers. In fact, the two are different. Where, acquisitions can occur between two companies with approval or without approval. While mergers are carried out with the consent and agreement of two or more companies to achieve a common goal. In addition, the targets of acquisitions are usually small companies. While mergers are usually carried out by large companies or have the same scale. Then, the acquisition also does not produce a new company, because the acquirer still exists with the same name. Therefore, the acquisition also does not produce new shares. Meanwhile, in a merger, the company that does it will become a new company or business with a name and owner that will be determined later. Add more,
The following is a list of differences between mergers and acquisitions:
Types of Acquisition
Acquisitions are divided into several types, namely based on the object to be taken over and the type of business or business. Here is a further explanation:
Based on Expropriated Objects
There are three procedures that can be done to take over another company, namely consolidation or merger, shares, and assets.
1. Consolidation or Merger
Merger is a term that is often used to indicate a merger of two or more companies. Then just the name of one of the companies that joined. While consolidation shows the merger of two or more companies, where the names of the merged companies are lost. Then came the new name of the combined company.
2. Acquisition of Shares
The second way to acquire other companies is by buying part or all of the shares of that company. Either buy it in cash or replace it with other securities such as stocks or bonds.
3. Asset Acquisition
The last way to take over a company is to buy assets from the company. This method will prevent the company from having minority shareholders. This could have happened in the event of a share acquisition. Acquisition of assets is usually carried out by transferring ownership rights to assets purchased by the company.
Based on Business Type
There are three types of acquisitions based on the type of business, namely horizontal, vertical and conglomerate. Here is the full explanation:
1. Horizontal Acquisition
This type of horizontal acquisition is an acquisition that is usually carried out by a company to target companies that have the same business field. So that the company is a competitor or business competitor, both in terms of producing the same goods or the same area. The purpose of this acquisition is to enlarge the target market or kill the competitor.
2. Vertical Acquisition
Vertical acquisition is a type of acquisition made between one company and another company that is still in the same production chain. Usually it is a company engaged in upstream to downstream production. The purpose of this acquisition is to obtain certainty of product supply and sales.
3. Conglomerate Acquisition
Conglomerate acquisition is a type of company acquisition that is not related to other companies. Both vertically and horizontally. The purpose of this acquisition is so that the company being acquired can support the company making the acquisition as a whole and to strengthen the condition of the portfolio or portfolio of the company group.
When viewed from an accounting perspective, if two or more companies are carried out simultaneously or combined with the aim of continuing the business, then this can be categorized as a form of acquisition. As a result of this combination, the accounting recording procedure consists of two kinds, namely using the purchase method or by purchase and the pooling of interests method or by pooling of interest.
The Purpose of the Acquisition Is
Actually, what is the purpose of the acquisition? The following are acquisition objectives that must be understood.
1. Finding Ways To Find New Markets
Most companies choose to make acquisitions or take over other companies that have different markets. For example, a company engaged in the IT sector buys or takes over a company engaged in the pharmaceutical sector. Why is that? This method is generally taken when a company wants to find and enter into a different industry. With an acquisition, the company can enter the desired market more easily.
2. Acquire Acquired Business Customers
When making an acquisition of a company, especially if the company is well known. Then we will get their customers too. This can be the choice of a company when it is difficult and wins the hearts of the acquisition target consumers. That way, we can not only strengthen the brand’s position in the market. But it can also avoid competition with companies that have the potential to become big competitors for our company. This method has been carried out by Facebook by taking over Instagram
3. Increase Profits Using Startup Products
Large companies can take over products from companies that are still pioneering or small companies that have innovative products, but still have difficulty in strengthening their market dominance. After making an acquisition, large companies will assist in marketing the startup’s products while benefiting from it. That way has been done by IBM, a giant company in the software industry. Where the company has been claimed to be able to increase acquiree income by 40% within two years after the acquisition.
4. Sharing Knowledge and Knowledge
Both the acquiring company and the acquired company can take advantage of the acquisition as a medium for exchanging knowledge and new knowledge. Especially if the two companies are engaged in the same field or industry.
5. Acquire New Technologies Easily
If a startup that has unique technology and is also useful. Then this can be a reason for large companies to make acquisitions. By taking over these startups, the technology they have will not fall into the hands of business competitors or competitors. Not only that, acquirers also no longer need to bother developing similar technology. For example, Apple’s way of taking over Siri is one of the superior features on iOS devices.
6. Strengthening the Main or Core Business
One of the reasons why a company makes acquisitions of other companies is to strengthen their main business. If there are two companies that are in the same industry and target a similar market, it is likely that one of these companies will acquire a competing company in order to increase sales. This happens because by acquiring other companies, the acquiring company will gain resources, employee capacity, as well as wider business connections.
Acquisition Challenge
Although it provides many benefits and advantages, it turns out that acquisitions can’t be separated from challenges. The following is a full explanation:
1. Differences in Purpose
In making an acquisition, the two companies involved must have the same goal. If not, it will greatly hinder the performance process. However, this can be prevented by being transparent when discussing acquisitions. For example, Facebook’s promise to give freedom to Instagram when they acquire the application.
2. Differences in Work Culture
The next challenge that could occur when making an acquisition is a different work culture. Especially if a large company acquires a startup. Of course large companies tend to have a more complicated bureaucratic system. While startups are more agile in developing their business.
3. The flight of investors who do not agree with the acquisition
In an approved acquisition, the two companies could have struck a new deal. However, investors or shareholders of the target company may not approve. This is because they are worried that the company’s business development will not be in accordance with the initial agreed plan. It is possible that investors who do not agree will run away or leave.
4. Production Constraints Due to a Shortage of Suppliers
By acquiring the resources of other companies, the production of goods will certainly increase. However, beforehand we must ensure that the company will obtain sufficient supply from its suppliers if it does not want its production process to be hampered.
Acquisition Example
Despite the challenges that may occur during the implementation process, acquisitions are still common, both domestically and abroad. The following are some examples of acquisitions made by large companies:
a. Purchase of Android by Google in 2005
b. Purchase of Giphy, an animated GIF search website conducted by Facebook in 2020
c. Purchase of Siri, a virtual assistant on iOS devices, where the acquisition was made by Apple in 2010
d. Purchase of Rabobank, an international bank with branches in Indonesia, by Bank Central Asia or BCA in 2019
e. Purchase of Bridestory, a marketplace vendor for wedding needs made by Tokopedia in 2019
f. Purchase of Jualo, one of the Indonesian used goods marketplaces, by Carro marketplace engaged in the automotive sector in 2019
How, from the explanation above, do you know what acquisition means and what are the benefits? We can conclude that an acquisition is a way for a company or acquirer to take over another company or acquiree with approval or without approval. If based on the object taken over, acquisitions are divided into three types, namely mergers or consolidations, acquisition of shares, and acquisition of assets. Meanwhile, based on the type of business, acquisitions are divided into three categories, namely horizontal, vertical, and conglomerate.
If a company wants to make an acquisition, there are several objectives that must be achieved, including:
a. Finding ways to enter new markets
b. Increase profits by using the acquisition target’s products
c. Obtaining consumers from the acquired business
d. Share knowledge and new knowledge
e. Acquire new technology more easily
By making acquisitions, startup companies have the potential to grow rapidly. For example, like Gojek, which previously only provided one service, now it has also become a super application.
Those are some explanations regarding the meaning of acquisition, types, functions, and benefits for the companies that do it. Check further explanations through Sinaumedia’s recommended books.