An acquisition occurs when one firm buys the majority or all of the shares of another company in order to take control of that company.
Buying more than half of a target company's shares and other assets gives the acquirer the authority to make decisions concerning the newly acquired assets without the permission of the other shareholders.
Acquisitions, which are quite common in business, can take place with or without the target company's agreement.
During the approval procedure, there is frequently a no-shop provision.
Because these large and substantial agreements tend to dominate the headlines, we usually hear about acquisitions of large well-known corporations.
In actuality, mergers and acquisitions (M&A) between small and medium-sized businesses are more common than between giant corporations.
Companies buy other businesses for a variety of reasons.
They may be looking for cost savings, diversification, higher market share, increased synergy, or new specialised offers.
The following are some more motives for acquisitions.
Perhaps a company's resources were reduced due to physical or logistical constraints.
When a company is burdened in this way, it is generally better to acquire another company rather than expand its own.
As a fresh source of revenue, such a corporation would look for potential young companies to acquire and incorporate into its revenue stream.
Foreign Market Access
If a corporation wishes to expand its operations to another country, purchasing an existing company in that country may be the most cost-effective way to do so.
The acquired company will already have staff, a brand name, and other intangible assets, which could help the acquiring company establish a strong foothold in a new market.
Companies may resort to acquisitions to minimise excess capacity, eliminate competition, and focus on the most productive providers if there is too much competition or supply.
In order to obtain new technology
Purchasing another company that has successfully applied a new technology might sometimes be more cost-effective than investing the time and money to develop the new technology itself.
Is it better to buy, takeover, or merge?
Although the terms "acquisition" and "takeover" are nearly interchangeable in theory, they have distinct meanings on Wall Street.
In general, "acquisition" refers to a mostly friendly transaction in which both parties cooperate; "takeover" refers to a situation in which the target company resists or strongly opposes the purchase; and "merger" refers to a situation in which the purchasing and target companies merge to form a completely new entity.
However, because each acquisition, takeover, and merger is a unique instance with its own set of features and motivations for completing the transaction, these phrases are frequently used interchangeably.
Friendly acquisitions occur when the target company accepts to be purchased and the acquisition is approved by the target company's board of directors (B of D, or board).
Acquisitions that are friendly to both the acquiring and target companies are common.
Both firms devise procedures to ensure that the purchasing company buys the right assets, and they examine the financial statements and other values for any potential liabilities.
The acquisition will begin once both parties have agreed to the terms and have met any legal requirements.
When the target company refuses to consent to the acquisition, it is referred to as a "unfriendly acquisition."
Because hostile acquisitions do not have the same level of agreement from the target company, the acquiring firm must actively purchase big holdings in the target company in order to gain a controlling position, forcing the acquisition.
Even if the takeover isn't quite hostile, it implies that the companies aren't equal in some sense.
A merger is a more-than-friendly purchase because it involves the mutual integration of two companies into one new legal entity.
Mergers usually take place between organisations that are roughly comparable in terms of size, number of clients, scope of operations, and so on.
The merging companies are convinced that their merged entity will be more valuable to all parties (particularly shareholders) than either of them could be individually.