Difference Between Similar Terms and Objects

Differences Between Acquisitions and Asset Management

Acquisitions and Asset Management are two terms that every successful business has come across in its lifetime. They are also two terms that have been misunderstood by most people. Some use one to mean the other. But are there differences between the two? In this article, let’s explore what acquisitions and asset management are and learn their differences. 

What are Acquisitions?

Acquisition refers to a situation where a company purchases most or all of another company’s shares to take control of that company. Purchasing more than 50% of a company’s assets or stocks allows the acquiring company to make decisions about the assets without the approval of other shareholders. Acquisitions are made to take control of and to build on the target company’s strengths.

Acquisitions can be broadly classified into two: asset acquisition and stock acquisition.

Asset acquisition refers to the purchase of specific assets and liabilities of a company while stock acquisition refers to the purchase of the entire company including all assets and liabilities.

Reasons for making an acquisition

Companies make requisitions to be able to:

  • Enter new markets

It is easier for a company to enter a new market with a brand that is already recognized with a good reputation and existing client base than it is a new brand. Acquisitions help overcome market entry barriers that were previously a challenge.

  • Increase market power

Acquisitions help increase the market share of a company quickly. This process increases synergies which is any effect that increases the value of a merged firm than the combined value of the two separate firms.

  • Acquire new competencies and resources

A company can choose to take over another company to acquire competencies that it lacks currently. This way it increases its revenue and also can improve the long-term financial position of the company.

  • Access to specialists.

When small businesses join with big companies, they can meet experts in the field like financial and legal experts.

  • Access to capital

Access to capital for the larger company is easier, giving room for larger loans from the banks without digging into the pocket.

Other reasons include fresh ideas and perspectives from a new team of experts, reducing excess capacity and decreasing competition, and diversification.

What is Asset Management?

Asset management refers to the process of developing, operating, maintaining, and cost-effectively selling assets. In finance, the term can also be used to refer to individuals or firms whose work is to manage assets on behalf of individuals or other entities.

Every company needs to keep track of its assets to help the stakeholders to know which assets are available for use to provide optimal results. Assets can be classified boldly into two: fixed and current assets. Fixed assets are those acquired for long-term use. Current assets are those that can be sold or converted into cash within a short amount of time.

Reasons for asset Management

Asset management is important because:

  • It enables firms to account for all their assets

The process enables firm owners to know where their assets are located, how they are used, and if any changes have been made to them. Hence, asset management helps companies keep track of their assets, whether fixed or liquid.

  • Helps guarantee the accuracy of amortization rates.

Amortization refers to the process of gradually writing off the initial cost of an asset. Since the assets are checked regularly, asset management ensures the statements capture them correctly.

  • Helps identify and manage risks

Through asset management, firms can identify and manage risks that arise from the use and ownership of certain assets. This way, a firm will always be ready to manage any risk that emerges.

  • Removes any missing assets from the company’s record books

Asset management ensures that lost, damaged, or missing assets do not appear in the company’s inventory. This brings out a clear picture of what the company truly owns.

Similarities between Acquisition and Asset Management

  • Both are terms used in business

Differences between Acquisition and Asset Management

Definition

 Acquisition refers to a situation where a company purchases most or all of another company’s shares to take control of that company. Asset management, on the other hand, refers to the process of developing, operating, maintaining, and cost-effectively selling assets.

Purpose

Acquisitions involve buying assets or stocks of a company to take control of a company while asset management involves acquiring, maintaining, and trading assets with the aim of growth and accountability.

Item of purchase                                              

Acquisitions can involve assets as well as stocks while asset management involves only assets.

Parties involved                                                                               

Acquisitions involve two companies where one takes ownership of the other while asset management deals with accounting for an individual company’s assets.

Decision making

In acquisition, the acquiring company can make decisions without the shareholders’ approval if it purchases more than 51% assets or stocks while in asset management only the individual company is present and decisions are made within this organization.

Tracking Tool

In acquisition no tracking is necessary but in asset management, asset management software is needed to keep track of the assets.

Acquisitions vs. Asset Management: Comparison Table

Acquisitions vs. Asset Management: Conclusion

While acquisitions and asset management are closely related terms used in the business world, they are different in their own making. Acquisitions involve a company buying another company’s assets or stocks to eventually take control of it. Asset management involves acquiring, maintaining, and trading an individual company’s assets for growth and accountability. Knowledge is power. Now that you know what they are, you’ll be able to differentiate and use them appropriately in your next business meeting.

FAQS

What are the two types of asset management?

Fixed asset management and Current asset management

What is the difference between a stock acquisition and an asset acquisition?

Asset acquisition refers to the purchase of specific assets and liabilities of a company while stock acquisition refers to the purchase of the entire company including all assets and liabilities.

What are acquisitions and an example?

Acquisition refers to a situation where a company purchases most or all of another company’s shares to take control of that company.

An example is when a milk processing company buys another milk processing company which is its competitor to reduce excess capacity and reduce competition.


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References :


[0]John McMahan. Cases in Commercial Real Estate Investing. McMahan Real Estate Services, 2005. https://books.google.co.ke/books?id=TIHjkl0ed7cC&pg=PA131&dq=Differences+between+Acquisitions+and+Asset+Management&hl=en&sa=X&ved=2ahUKEwiuoojAyID0AhXlzoUKHcjaDMsQ6AF6BAgHEAI#v=onepage&q=Differences%20between%20Acquisitions%20and%20Asset%20Management&f=false

[1]Diz F & Whitman M. Modern Security Analysis: Understanding Wall Street Fundamentals. John Wiley & Sons, 2013. https://books.google.co.ke/books?id=KfV0Kx--zYMC&printsec=frontcover&dq=Differences+between+Acquisitions+and+Asset+Management&hl=en&sa=X&redir_esc=y#v=onepage&q=Differences%20between%20Acquisitions%20and%20Asset%20Management&f=false

[2]Adam Epstein. Vault Career Guide to Investment Management. Infobase Learning, 2013. https://books.google.co.ke/books?id=fANcAgAAQBAJ&pg=PA6&dq=Differences+between+Acquisitions+and+Asset+Management&hl=en&sa=X&ved=2ahUKEwiuoojAyID0AhXlzoUKHcjaDMsQ6AF6BAgJEAI#v=onepage&q=Differences%20between%20Acquisitions%20and%20Asset%20Management&f=false

[3]Image credit: https://live.staticflickr.com/65535/48332916697_6073d5ed33_b.jpg

[4]Image credit: https://www.thebluediamondgallery.com/hand-held-card/images/acquisitions.jpg

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