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What Does Acquisition Mean? Types of Acquisitions

Publish Date: 17 Sep 2020

Finance Today

What Does Acquisition Mean? Types of Acquisitions

Find out the meaning of acquisition in the business world

Acquisition is when a person or company buys majority shares of another company and thus have controlling interest. The second company may even be bought out completely. 

For example if company A acquires 51% or more of the stock of company B then company A can make all  the administrative decisions in company B without their prior approval. 

 

Types of Acquisitions: 

 

Amicable/friendly acquisition:

 

A company makes an offer to another company to acquire it. The company being acquired has the right to accept or refuse the offer. Sometimes company owners want to sell their companies or the majority of their stock for one reason or another. At that point they seek the assistance of merge & acquisition experts to facilitate the deal and get the best price for their company. 

 

Hostile Takeover:

 

This occurs when the target company is resistant to being acquired. Hostile takeover usually involve companies listed on the stock exchange and they are usually unaware they are being “taken over” and don’t wish to be acquired in the first place. 

 

The hostile company tries to acquire as many shares of the second company as possible by directly contacting shareholders and buying them out one by one. 

Acquisition may be the easiest way for a large company to enter a new market sector especially if it is in another country. 

 

Reasons for acquisitions:

 

Remove competition 

 

The acquiring company wants to monopolise the market and remove its competition. For example, Uber buying out Careem. 

 

Enter a new market sector: 

 

Acquisition may be the easiest way for a large company to enter a new market sector especially if it is in another country. All they would have to do is manage the existing company. 

 

Acquire new tech or experts in a certain field: 

 

Smaller companies may benefit from larger companies’ resources but even if both companies are the same size one my have resources or proprietary technology or even experts that the other can benefit from for their projects.

 

Liquidity

 

The acquired company may have all its capital tied in physical assets and the acquisition will provide it much needed cash. 

 

Even though acquisition is an important part of the business works we usually only hear about acquisitions of large companies. Smaller companies go through this process as well either to improve their standing in the market or for other reasons but we just don’t hear about it.

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