Acquisition results when one firm buys a majority interest in another, but both retain their identities. Corporations that want a reliable supply of parts and materials or guaranteed markets for their products often use this tactic. They simply purchase enough of the outstanding shares of a supplier or a customer to exercise a controlling interest in that firm.
What is Acquisition
The process of one corporation purchasing another's assets, stocks, or both is referred to as acquisition. The purchasing business takes over control of the acquired company and can run it as a subsidiary or integrate it with its activities.
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An acquisition is the purchase of an entire company or a controlling interest in a company generally through tender offer for the target shares.
Understanding the Term
Acquisition is a popular business strategy organizations employ to extend their market presence, generate income, lessen competition, or acquire access to new technology or resources. The acquiring business may buy out the target company's shareholders or reach an amicable agreement with the target company's management. In rare situations, this process may be hostile, with the acquiring business making a direct bid to purchase the target company's stock.
This process can occur in any business or sector, including healthcare and technology, as well as energy and retail. Companies may buy other companies in the same industry, increasing their market share and decreasing competition. Alternatively, a company may purchase a company in a related industry, gaining access to new technologies, products, or consumers.
Types of Acquisition
There are various sorts of acquisitions, each with its traits and benefits.
1. Horizontal acquisition
This form of acquisition entails purchasing a firm in the same industry as the acquiring corporation. The primary purpose of this type is to raise the acquiring company's market share and minimize competition.
2. Vertical acquisition
The purchasing business purchases a company that operates at a different supply chain step in a vertical acquisition. A manufacturing corporation, for example, may purchase a supplier to obtain greater control over its raw resources.
3. Conglomerate acquisition
A conglomerate acquisition entails the purchase of a company from an unrelated industry. The acquiring firm may be looking to diversify its operations, enter new markets, or capitalize on new technologies.
4. Congeneric acquisition
A congeneric acquisition entails the purchase of a company in a related industry. This is similar to a horizontal type, except that the target business operates in a different sector of the same industry.
Purpose of it
The primary goal of an acquisition is to increase value for the acquiring firm's shareholders. This process can assist businesses in the following ways:
- Increase their market share while decreasing competition.
- Obtain new technologies, products, or customers.
- Diversify their operations and rely less on a particular product or market.
- Improve their income and profit.
- Extend their geographic footprint and worldwide presence.
Examples
Microsoft Corporation entered into an agreement to acquire Activision Blizzard, Inc., on January 18, 2022, for $68.7 billion in cash. The acquisition process is expected to be completed by the end of 2023. Activision Blizzard is a leading video game developer and publisher of popular game franchises, such as Call of Duty, World of Warcraft, etc. With this process, Microsoft will have complete control over these titles and a robust presence in the gaming industry.
Another significant acquisition in 2019 was Disney's purchase of 21st Century Fox. Disney gained access to Fox's massive collection of movies and TV episodes and its production skills as part of the $71.3 billion acquisition. The action boosted Disney's status as a leading media and entertainment firm.
In sentence
- Acquisitions can help companies to increase their market share and reduce competition.
- The primary purpose of an acquisition is to create value for the acquiring company's shareholders.