When a company acquires the majority or all of the shares of another company in order to take over that business, it makes an acquisition. If the acquirer purchases more than 50% of the target company's shares and other assets, the acquirer can make decisions on newly acquired assets and influence company's targets without needing the permission of the other shareholders.
Acquisition
Different motivations drive company acquisitions. They may pursue scale, diversity, market share, synergy, cost reductions, or specialty offers. Below are other acquisition reasons.
Foreign market entry
Buying a local company may be the easiest option for a company to join a foreign market. The purchased business will have its own people, brand name, and other intangible assets, helping the acquiring company start off in a new market with a solid platform.
Growth
Maybe a corporation ran out of physical or logistical resources. If a company is in this position, it's frequently better to purchase another than to grow. As a fresh means to earn, such a firm may purchase promising fledgling enterprises.
Reduce overcapacity and competition
Companies may resort to acquisitions to minimize excess capacity, eliminate competition, and focus on the most productive providers if there is too much competition or supply.
New technology
Buying a company that has already incorporated a new technology can be more cost-effective than developing it from scratch. Please note that before making an acquisition, company officers must undertake due diligence on target companies
Acquisition, takeover or merger?
The term acquisition describes an amiable transaction when both firms collaborate. Takeover suggests the target company resists or vehemently opposes the purchase. Merger is used when the purchasing and target companies join to establish a new entity. Due of the uniqueness of each acquisition, takeover, and merger, the exact use of these terms tends to overlap in practice. Let's see each one in details.
Friendly acquisitions occur when the target firm agrees to be bought and its board accepts. Friendly acquisitions benefit both companies. Both organizations adopt procedures to guarantee the acquiring company buys the right assets and analyze financial statements and appraisals for any commitments. The purchase proceeds once all parties agree to the terms and legal requirements.
Takeovers are often hostile when the target company does not consent to the acquisition. Hostile acquisitions don't have target firm agreement, thus the acquiring firm must actively buying big holdings to achieve a controlling interest, forcing the acquisition.
Even if an acquisition isn't hostile, it means the companies aren't equal in some sense.
Mutual mergers create new companies. A merger is a favorable acquisition of two companies. Mergers usually involve organizations with similar size, customer base, and activities. The merging companies believe their merged entity will be more valuable (particularly to shareholders) than either one alone.
Acquisition Types
Acquisitions and mergers can be categorized in four ways.
What is an Acquisition's Purpose?
Parent company acquisitions serve numerous functions. First, it can increase the company's product lines. Second, it can lower expenses by buying supply-chain enterprises. It can buy rivals to maintain market share and limit competition.
Merger vs. Acquisition: What's the Difference?
In an acquisition, the parent business totally absorbs the target company. In a merger, two companies unite to form a new company, which might involve the creation of a new name, a new identity, and common objectives combining aspects of both companies.
Acquisition
Different motivations drive company acquisitions. They may pursue scale, diversity, market share, synergy, cost reductions, or specialty offers. Below are other acquisition reasons.
Foreign market entry
Buying a local company may be the easiest option for a company to join a foreign market. The purchased business will have its own people, brand name, and other intangible assets, helping the acquiring company start off in a new market with a solid platform.
Growth
Maybe a corporation ran out of physical or logistical resources. If a company is in this position, it's frequently better to purchase another than to grow. As a fresh means to earn, such a firm may purchase promising fledgling enterprises.
Reduce overcapacity and competition
Companies may resort to acquisitions to minimize excess capacity, eliminate competition, and focus on the most productive providers if there is too much competition or supply.
New technology
Buying a company that has already incorporated a new technology can be more cost-effective than developing it from scratch. Please note that before making an acquisition, company officers must undertake due diligence on target companies
Acquisition, takeover or merger?
The term acquisition describes an amiable transaction when both firms collaborate. Takeover suggests the target company resists or vehemently opposes the purchase. Merger is used when the purchasing and target companies join to establish a new entity. Due of the uniqueness of each acquisition, takeover, and merger, the exact use of these terms tends to overlap in practice. Let's see each one in details.
Friendly acquisitions occur when the target firm agrees to be bought and its board accepts. Friendly acquisitions benefit both companies. Both organizations adopt procedures to guarantee the acquiring company buys the right assets and analyze financial statements and appraisals for any commitments. The purchase proceeds once all parties agree to the terms and legal requirements.
Takeovers are often hostile when the target company does not consent to the acquisition. Hostile acquisitions don't have target firm agreement, thus the acquiring firm must actively buying big holdings to achieve a controlling interest, forcing the acquisition.
Even if an acquisition isn't hostile, it means the companies aren't equal in some sense.
Mutual mergers create new companies. A merger is a favorable acquisition of two companies. Mergers usually involve organizations with similar size, customer base, and activities. The merging companies believe their merged entity will be more valuable (particularly to shareholders) than either one alone.
Acquisition Types
Acquisitions and mergers can be categorized in four ways.
- Vertical acquisition: The parent firm acquires a company in its supply chain, either upstream (vendor/supplier) or downstream (manufacturer/retailer).
- Horizontal acquisition: The parent company buys a competitor in the same industry and supply chain.
- Conglomerate acquisition: The parent corporation buys a company in a similar, peripheral or unrelated industry.
- Congeneric acquisition: When the parent buys a firm in the same or a closely similar industry, but with separate business lines or products, this is called a market expansion.
What is an Acquisition's Purpose?
Parent company acquisitions serve numerous functions. First, it can increase the company's product lines. Second, it can lower expenses by buying supply-chain enterprises. It can buy rivals to maintain market share and limit competition.
Merger vs. Acquisition: What's the Difference?
In an acquisition, the parent business totally absorbs the target company. In a merger, two companies unite to form a new company, which might involve the creation of a new name, a new identity, and common objectives combining aspects of both companies.