Introduction
How often have you wondered about the mumbo-jumbo spewed by the financial geeks around you? There is always that uncle at the party who cannot stop gushing with pride at the profitable stock he purchased at some famous company that everyone was sure was bound for doom or another uncle who nurses his drink with a quiet misery having suffered losses due to the latest merger of the company that he was a shareholder of. Then there are the youngsters enthusiastically giving free advice as a result of their newfound love for the stock market, the comments rolling off their tongues as if part of an inherent language.
The dialect is often boring. And it is boring because it is confusing. The words all sound similar and the differences in their meanings are so minuscule that remembering all of those terms makes it a hardship. But it is also a hardship to sit by oneself and listen to the other kind of drone. The one with the aunties. The gossip and nosy insights could lead to an effective bout of vomiting depending on the contents consumed. Not to forget the chronic headache that most definitely will not relieve you with a coma. You wish. The other alternative is kids and well, I did mention a chronic headache, right? Nothing against any of those options, but once in a while, it does help to keep one’s head in the right space. And what better way of doing it than by immersing yourself in an intelligible conversation. Even if it is about acquisitions or asset management. Those are financial terms and yes, they sound similar but are quite opposite in meaning. Let us begin with those and see if we can survive the jive.
Acquisition vs. Asset Management
To begin with, these terms are used in the business world. An acquisition is when a company acquires or purchases and gains control of more than 50% of another company. Asset management in contrast is the maintaining of assets to sell them in a cost-effective manner. Thus, they are very different.
Differences Between Acquisition and Asset Management in a Tabular Form
| Parameter | Acquisition | Asset Management |
| Definition | Acquisition occurs when a company purchases most or all of the shares of another company. | Asset management is the process of maintaining assets. It involves developing, operating and selling of assets. |
| Purpose | The purpose of acquisition is to take control of another company by buying their assets. | The purpose of asset management is to ensure the growth of the company by maintaining the assets. |
| Items involved | Acquisition involves the purchase of both stocks and assets. | Asset management only involves maintenance of assets. |
| Parties involved | The act of acquisition involves 2 parties where one company takes over another company. | Asset management only involves one company and the management of its assets. |
| Decision making | The company that performs the acquisition is the sole one that makes decisions if the purchase is over 51% of the assets or stocks of the other company. | The individual company performing asset management is the only one responsible for the decisions since the process takes place within the company. |
| Tracking | There is no tracking tool used for the process of acquisition. | There is an asset management tool that helps tracking of the assets. |
What is an Acquisition?
Everyone has heard of mergers and acquisitions when talking about business. An acquisition is a process where a company quests to take control over another company – the target firm. When they purchase over 51% of the target company, they can do so without the approval of the shareholders of that company. When a company takes over another company, it can be done so with the approval of the shareholders of that company or with their disapproval. However, when it occurs with approval there is a no-shop clause that takes effect during the process of acquisition. This condition says that when a seller and a buyer are involved in an agreement, the seller is prohibited from receiving offers from other buyers.
There are various purposes for performing an acquisition like increasing the prospects of sale, diversification, increasing share market values or reducing costs etc. other important reasons are as follows:
- A means to enter the foreign market: to enter the foreign market in a specific country, the easiest way is by purchasing a company that already exists in that company. The prime advantage of this act would be the fact the purchased business will already have the personnel and a familiar brand name which could yield a solid foundation to expand the business.
- A means to further the growth of the company: when a company has problems within its functioning be it logistics or depletion of sources, it is often more sensible to acquire a company that can have those needs met rather than trying to expand on their own. Such affected companies can acquire young companies to improve their combined revenue.
- A means to eliminate competition: when there is excess competition and supply, a company can acquire other companies to reign in the capacity of production, reduce the competition and provide effectively.
- A means to gain new technology: in companies wishing to experiment with new technology, it is rather feasible that they acquire companies that have already tried and found success in the implementation of such technology. It saves the company resources and time.
- Acquiring a larger capital: with acquiring smaller companies, they increase their capital which makes them eligible for larger loans from banks.
- Acquiring specialists: tech experts from the smaller companies will get to meet other tech experts and improve the overall growth of the company.
What is an Asset Management?
The meaning of asset management is rather literal. The process of developing, operating, managing and selling assets is what constitutes asset management. In the business world, the act is usually indicative of a person or a firm that performs the process for other companies.
Asset ownership forms a part of any company and thus, the process of asset management is rather important in a company. It informs the owners of the company of their assets, and if they are viable for optimal returns. There are mainly 2 types of assets that are owned by a company – fixed and current. Fixed assets are those assets that are acquired for long-term use. Current assets are those assets that can be converted into cash in a short time.
Other than maintenance of assets, there are other needs for asset management. They are as follows:
- As a means to account for the assets: the process of asset management makes the record of assets easy to follow. The owners can keep track of the location of the assets, how they are being used and the changes that have been made to them. It also helps the easy recovery of the assets.
- As a means of accurate records of amortization rates: the process of asset management ensures that assets are checked regularly. This, in turn, ensures that all financial records are maintained scrupulously.
- As a means to identify and manage risks: Asset management thoroughly assesses the assets and the threats they come with. Any risks that arise from the utilization of such assets can thus be identified and managed.
- Elimination of ghost assets: when there are instances where the assets are either lost, stolen or damaged. These assets are improperly recorded. With asset management, the record will show the owners if there are any such assets and they can be eliminated from the record.
Asset management offers the company access to the owners to monitor the assets effectively which improves the technique of utilization and acquiring of assets. It also helps reduce wasteful practices and reduces costs thereby benefiting the growth of the company. It also improves compliance with organizations like the government agencies and non-profit organizations that are required to report on the workings of a company. At such a time, asset management offers an easy reporting process with all the information about the acquisition, utilization and disposal of assets.
The Main Differences Between Acquisition and Asset Management in Points
Following are the main differences between acquisition and asset management:
- A company is said to perform an acquisition when it takes control or purchases most or all of the assets or stocks of another company. On the other hand, Asset management is the process of maintaining the assets. There is developing, operating and selling of assets in asset management.
- The purpose of the acquisition is for one company to gain control of the other company while the purpose of asset management is to make certain the company’s assets favour the growth of the company.
- The items of trade involved in the process of acquisition are both assets and stocks while the items involved in asset management are solely assets.
- The parties involved in the process of acquisition are 2 – the one company making the acquisition and the other company being acquired. In asset management, there is only one party involved – the one managing the assets. It is a process that takes place within the company.
- The decision-making power of acquisition lies with the company that performs the acquisition if they intend to take control of over 51% of the other company. In such a case they need not consult the shareholders. For Asset Management, the decision-making power lies only with the company since it is the only one involved in the process.
- A company can acquire another company or the target firm with or without the approval of the shareholders of the target firm. Asset management is a process that takes place within a company and does not require approval.
- The acquisition process helps in the expansion of the company by acquiring other companies while asset management only helps keep track of the assets that serve to improve the efficiency of the company.
- There is no tracking tool to track the acquisition process whereas there is a special tracker for the asset management process.
Conclusion
The world of business with confusing terms can be tedious. But when broken down to the core, the terms are easy to understand and follow. So, acquisitions are when a company overtakes another company with or without their approval for expansion. The company can acquire either stocks or assets of the target firm. There are other reasons for acquisition too like increasing the market value of the company, foreign expansion, gaining new technology, reducing costs, acquiring new expertise from other companies, eliminating competition and even increasing the capital of the firm. These processes improve the quality of the company and make it more profitable and desirable to the general public.
Asset management is the process of maintaining records of the assets that are possessed by a company. This process involves developing, operating and selling assets. Since all companies own assets, it is a rather important process than needs to be performed with utmost precision. The procedure of asset management yields a thorough account of the present assets, their location and purposes. This makes tracking the assets an easy job. It also makes the recovery of assets simple. In case of lost or ghost assets, these can be eliminated from the records. Asset management is particularly useful for the owners for effective preservation of the assets. The records also help at the time of examination by external organizations like the government agencies or non-profit organizations to file their reports on the working of the company.
Both these processes ultimately enable the growth of a company via expansion for acquisitions and via scrupulous record maintenance for asset management. This knowledge ought to kickstart a conversation when you wish to avoid a headache from gossip or children. However, it is not a guarantee that the conversation itself won’t lead to a plethora of other terms that need reading up about. It is advisable to be well prepared either with familiar terms for the follow-up questions or with a painkiller for the headache. The choice is yours.
References
- https://www.investopedia.com/terms/a/acquisition.asp
- https://corporatefinanceinstitute.com/resources/knowledge/finance/asset-management/
