What is an Acquisition ?
An acquisition is a deal in which one business buys all or most of the shares of another business in order to take over that business. In the business world, acquisitions are frequent and can happen with or without the target company's consent. A no-shop condition is frequently included in the procedure with approval. Mergers and acquisitions, happens more frequently between small- and medium-sized businesses than between large corporations, despite the fact that most people are familiar with the purchases of well-known, huge corporation
In Simple words : An acquisition is a business transaction that occurs when one company purchases and gains control over another company
KEY KNOWLEDGE
Why do Companies make Acquisition ?
1. To get into an overseas market A corporation that wishes to expand its operations into a foreign market can do so most effectively by purchasing an already-existing company in that nation. It will be far simpler for the purchasing firm to establish roots in that nation's market and build a new, strong foundation because the target company will already have its workforce, assets, and brand name.
2. Expansion plan It is preferable for a business to buy out a new firm rather than grow its own when it is faced with logistical or physical limitations and has exhausted all of its resources. Using the resources of the target firm, the business is able to generate new income streams and profits that were previously unattainable. These businesses frequently search for young, promising businesses to buy.
3. In order to lessen competition The business world is one of the most competitive industries, which should come as no surprise given the increasing number of startups and new businesses entering the market. For this reason, the majority of businesses search for acquisitions to cut down on surplus capacity and get rid of rivals, allowing them to concentrate on the most productive suppliers.
4. To get modern technology Purchasing new technology from a business that has already adopted and is using new technology is another reason a corporation would choose to acquire another company in order to enhance its resources. By doing this, the acquiring business avoids having to invest time and funds in developing the new technology.
IMPORTANT
Upon acquiring over 50% of a target business's shares and other assets, the acquirer gains the authority to make decisions regarding the recently acquired assets without the consent of the other shareholders of the company.
Reasons for Acquisition ?
Growth Strategy :
Perhaps a business ran out of resources or encountered logistical or physical difficulties. When a business is burdened in this manner, it is usually wiser to buy out another company rather than grow its own. As a fresh avenue for profit, such a corporation would search for young, promising businesses to buy and add to its income stream.
Entering into Foreign Market :
Purchasing an existing business in that nation might be the simplest approach for a corporation to join a foreign market if it want to expand its operations to another nation or an entirely new market. The acquired firm will already have its own staff, a well-known brand, and other intangible assets, which may make it easier for the acquiring corporation to have a head start in a new market.
Reducing Excess Capacity and Decreasing Competition :
Companies may begin to make purchases in order to minimize surplus capacity, remove rivalry, and concentrate on the most productive suppliers if there is an excess of supply or competition.
Federal monitors often keep an eye on transactions that might impact the market. Acquisitions of comparable firms, for example, may negatively affect customers by raising costs and resulting in lower-quality goods and services.
New Technology :
Sometimes it can be more cost-efficient for a company to purchase another company that already has implemented a new technology successfully than to spend the time and money to develop the new technology itself.
IMPORTANT
Before making any acquisitions, company officers have a fiduciary obligation to do extensive due diligence on potential enterprises.
Difference between Merger vs Acquisition :
| Acquisition | Merger |
|---|---|
| Meaning : An acquisition is a cycle wherein one organisation assumes or takes over the responsibility for another organisation. | Meaning : A merger is a cycle wherein more than one organisation’s approach functions as one. |
| Issuance of Share : No new shares are issued in case of acquisitions. | Issuance of Share : New shares are issued in case of mergers. |
| Mutual Consent & Decisions : Acquisition decisions are typically not made collaboratively or with cooperation from both parties; when an acquiring organization takes over another business without the approval of the acquired firm, this is referred to as a hostile or unfriendly takeover. | Mutual Consent & Decision : A combined company entity is decided upon by the organizations concerned agreeing to it together. Instead, it's a cordial and organized one. |
| Company's Name : Most of the time, the gained or acquired organization operates under the parent organization's name. Nonetheless, if the parent firm agrees, the former business may occasionally continue to operate under its original name. | Company's Name : The combined company operates under a new or different name. |
| Example : Tata Motors acquisition of Jaguar Land Rover | Example : Tata Motors acquisition of Jaguar Land Rover |
Types of Acquisition :
The parent corporation buys a business that is either downstream (a processor or retailer) or upstream (a vendor or supplier) in its supply chain.
At the same stage of the supply chain, the parent company purchases a rival or another business in its same industry.
The parent corporation purchases a business in a tangential or unrelated field, or in a whole new industry or sector.
This is often referred to as a "market expansion" and happens when the parent company purchases a company with distinct business lines or product lines but is in the same or a closely related industry.
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