Acquisition
An acquisition is a corporate action where one company purchases most or all of another company’s shares to gain control of that company. Acquisitions are part of the broader mergers and acquisitions (M&A) landscape and can be motivated by various strategic reasons, such as entering new markets, acquiring new technologies, or achieving economies of scale. This article will explore the definition of an acquisition, and its types, and provide examples to illustrate these concepts.
Definition of an Acquisition
An acquisition occurs when one company, the acquirer, purchases a majority or all the shares of another company, the target, thereby gaining control over the target’s operations and decision-making. The acquisition can be friendly, where the target company’s management agrees to the acquisitions, or hostile, where the acquiring company directly approaches the shareholders or uses other tactics to take control against the wishes of the target company’s management.
Types of Acquisitions
- Horizontal Acquisition: This type of acquisitions occurs between companies operating in the same industry. The primary objective is often to eliminate competition, increase market share, or achieve economies of scale.
- Example: The acquisitions of Instagram by Facebook in 2012 is a classic example of a horizontal acquisitions, where Facebook eliminated a rising competitor in the social media space and significantly expanded its market presence.
- Vertical Acquisition: This involves a company acquiring another company that operates in its supply chain. These acquisitions are aimed at securing supply chains, reducing production costs, or gaining access to new distribution channels.
- Example: Amazon’s acquisition of Whole Foods in 2017 is an example of vertical acquisitions, allowing Amazon to expand its footprint in the grocery retailing sector and integrate its e-commerce platform with physical stores.
- Conglomerate Acquisition: This type of acquisition occurs between companies that operate in entirely different industries. The goal might be diversification, investment, or tapping into new markets.
- Example: Berkshire Hathaway’s acquisitions of Precision Castparts in 2016 is a conglomerate acquisition, with Berkshire Hathaway diversifying its investment portfolio into the aerospace and defense industries.
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- Market-extension Acquisition: This acquisitions aims to enter new markets by acquiring a company that offers similar products or services in a different geographic area.
- Example: Tata Motors’ acquisition of Jaguar Land Rover in 2008 allowed the Indian automaker to expand its market presence globally, particularly in luxury car segments.
- Product-extension Acquisition: Companies pursue this type of acquisitions to add new products to their existing portfolio that are related to their current offerings, often to provide more comprehensive solutions to their customers.
- Example: Google’s acquisitions of YouTube in 2006 enabled Google to extend its product offerings in the Internet services sector by including a video-sharing service alongside its search engine and advertising platforms.
Conclusion
Acquisitions play a crucial role in corporate strategy, allowing companies to grow, enter new markets, secure supply chains, or eliminate competition. While the examples provided illustrate the diverse motivations and outcomes of acquisitions, it’s important to note that the success of an acquisitions depends on thorough due diligence, strategic alignment, and effective post-acquisitions integration. As the business landscape continues to evolve, acquisitions will remain a key tool for companies seeking to adapt and thrive in an increasingly competitive and global market.