What is an Acquisition?
Mergers and acquisitions (M&A) are a type of corporate strategy used to grow a company through the purchase of another company. The goal of an acquisition is to create shareholder value by adding new products, technologies, or market access, or by removing cost from the combined company. M&A activity has been on the rise in recent years as companies look for ways to grow in a competitive global marketplace.
Definition of an Acquisition
An acquisition is when one company purchases another company. The purchasing company generally absorbs the target company’s operations, workforce, and products.
While there are many reasons why a company might choose to pursue an acquisition, the most common motivations are to gain market share, expand into new markets, or acquire new technology or talent.
There are several types of acquisitions, but the most common are asset acquisitions and stock acquisitions. In an asset acquisition, the purchasing company buys the target company’s assets, while in a stock acquisition, the purchasing company buys the target company’s stock.
Asset acquisitions are typically more straightforward than stock acquisitions, but they can also be more expensive since the purchasing company has to pay for all of the target company’s assets. Stock acquisitions can be more complex because they often involve negotiating with the target company’s shareholders.
No matter what type of acquisition it is, all acquisitions must be approved by the board of directors of both companies and by shareholders if the target company is public. The shares of a public company are bought and sold on a stock exchange, so shareholders must approve any changes in ownership.
What is the Purpose of an Acquisition?
An acquisition is when one company purchases another company. The purpose of an acquisition can vary, but it usually happens because the acquiring company wants to grow or expand its business. Sometimes an acquisition is done to gain access to new technology or products, or to enter a new market. Other times, it’s done simply to eliminate a competitor.
The Different Types of Acquisitions
There are four different types of acquisitions: asset acquisition, equity acquisition, merger, and consolidation.
Asset Acquisition: In an asset acquisition, the buyer purchases the seller’s assets, which may include tangible assets such as property, equipment, and inventory, as well as intangible assets such as patents, copyrights, and customer lists. The buyer typically assumes all liabilities associated with the acquired assets.
Equity Acquisition: In an equity acquisition, the buyer purchases shares of the seller’s stock. The buyer does not acquire any of the seller’s assets or assume any of its liabilities. Equity acquisitions can be accomplished through a tender offer or a reverse merger.
Merger: A merger is an acquisition in which the buyer and seller combine their businesses to form a new company. Both companies cease to exist as separate entities, and their shareholders become shareholders of the new company.
Consolidation: A consolidation is an acquisition in which two companies combine their businesses but maintain their separate identities. Consolidations are often used to expand market share or product offerings without incurring the cost or risk of a full-fledged merger.
The Process of an Acquisition
An acquisition is the process of buying another company. It can be a hostile takeover, in which the target company is not interested in being bought, or a friendly takeover, in which the target company agrees to be acquired.
The first step in an acquisition is usually finding a target company. The buyer then makes an offer to buy the target company. If the target company agrees to be acquired, the two companies negotiate a purchase price and other terms of the deal. Once they reach an agreement, the buyer announces the deal to the public.
The next step is due diligence, in which the buyer investigates the target company to make sure it is a good fit. This includes looking at financial statements, reviewing contracts, and meeting with managers and employees.
Once due diligence is complete, the two companies sign a definitive agreement outlining the terms of the deal. The buyer then completes the purchase by paying for the shares of stock or assets of the target company.
Pros and Cons of an Acquisition
An acquisition is when one company purchases another company. The Pros of an Acquisition are that it can help the acquiring company grow, it can help the acquired company by giving them access to new resources, and it can create synergies between the two companies. The Cons of an Acquisition are that it can be expensive, there can be cultural clashes between the two companies, and the integration of the two companies can be difficult.
Case Studies of Successful Acquisitions
There are many examples of companies that have been acquired and have gone on to be very successful. Some notable examples include:
-Zappos: Zappos was acquired by Amazon in 2009 for $1.2 billion. Since then, it has continued to grow and be a very successful company.
-WhatsApp: WhatsApp was acquired by Facebook in 2014 for $19 billion. It has since become one of the most popular messaging apps in the world with over 1 billion users.
-Instagram: Instagram was acquired by Facebook in 2012 for $1 billion. It has since grown to have over 700 million users and is one of the most popular social media platforms in the world.
Conclusion
An acquisition is a business combination in which one company purchases another. The word “acquisition” can be used to refer to the purchase itself, or the resulting company that is created. Acquisitions are usually done in order to expand the acquiring company’s products, market share, or geographical reach. Sometimes acquisitions are done in order to gain access to new technology or talent. Often times, an acquisition will result in some level of cost savings for the acquiring company as well.