What Does Acquisition Mean (Explained: All You Need To Know)

What Does Acquisition Mean in simple terms?

How does an acquisition work in business?

What are the essential elements you should know!

Keep reading as I have gathered exactly the information that you need!

Let me explain to you what acquisition means in business!!

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What Does Acquisition Mean

In business, acquisition refers to a person or company purchasing the controlling shares of another company or business entity.

In other words, when a company acquires another company, it means that the acquiring company has bought enough shares or controlling interest in the target company giving it the ability to make business decisions for the target company.

For example, Company A (the acquiring company), purchases more than 50% of Company B’s common shares.

In this example, we can say that Company B was acquired by Company A which now has a controlling interest in Company B.

Acquisition Definition

How do you define an acquisition?

An acquisition can be defined as follows:

Purpose of Acquisitions

There are many reasons why companies acquire other companies.

One of the most common reasons why a company will consider acquiring another company is to expand into other markets or solidify its position within an industry or segment.

You can also have companies looking to acquire other companies to reduce costs, take advantage of economies of scale, acquire another entity for their intellectual property portfolio, or business know-how.

Acquisition Benefits

There are many advantages for companies to acquiring other existing companies.

Here are some of the main advantages of business acquisitions:

• The acquiring company can benefit from economies of scale
• The acquiring company can increase its market share
• The possibility for vertical integration
• The possibility of reducing costs 
• Taking advantage of synergies 
• Reduced entry barriers to entering new markets 
• Access to the target company’s capital 

Acquisition Drawbacks

Acquisitions can also result in various forms of drawbacks.

Here are some of the main disadvantages of business acquisitions:

• Challenges in the two companies integrating with one another
• Inability to reduce costs as initially planned
• The acquisition was too costly for the benefits delivered 
• Culture clashes between the two companies 
• Redundant and duplicate roles within the organizational structure
• Conflicting business objectives and poor management 
• Excess pressure on company suppliers 
• Brand damage 

Acquisition Examples 

Although there are lots of acquisitions happening in the business world, we only hear about a very small number of them in the media or news.

In fact, it’s only the very large acquisitions that tend to attract the media’s attention.

To give you some examples of acquisitions, let’s look at some high-profile acquisitions in business.

In the year 2000, AOL Inc purchased Time Warner, Inc for a total value of $165 billion dollars.

That was a significant price tag that made this acquisition one of the largest in American history.

Another example of acquisition is when Amazon purchased Whole Foods in 2017 for $13.7 billion.

In this case, Amazon purchased a controlling interest in Whole Foods allowing Amazon to make business decisions for Whole Foods going forward.

What Is Acquisition Versus Takeover or Merger

What is the difference between acquisition, takeover, and merger?

Acquisition Meaning

In essence, the term “acquisition” is used to refer to a transaction where the acquiring company purchases the target company in a friendly manner.

In other words, the acquiring company expresses its intention of wanting to purchase the target company and the target company’s board of directors approves the proposal considering it will bring value to the shareholders.

Takeover Meaning

On the other hand, a “takeover” is a term used to refer to a transaction where the acquiring company purchases a controlling interest of the target company without the target company’s express board approval.

You can consider a takeover to be a hostile acquisition where the target company actively resisted the acquiring company’s acquisition plans.

Merger Meaning

Finally, the term “merger” refers to a transaction where the acquiring company and target company merge and become a new legal entity.

Some companies prefer to merge their business operations as the combined business can operate more effectively, can result in cost savings, or provide more value to shareholders, clients, and other company stakeholders.

What Is Acquisition Takeaways 

So there you have it folks!

What does acquisition mean in business?

What is a business acquisition in simple terms?

In essence, an acquisition is a term used in business to refer to a situation where a company takes control of another company.

In most cases, a larger company will acquire the controlling interest of a smaller company even though the opposite can also be true.

Companies engage in acquisitions to fuel corporate growth, access a new customer base, bring additional sources of revenue, add additional products and services to their portfolio, reduce costs, find synergies, and more.

Although there are lots of mergers and acquisition activities in the business world, we generally only hear about those that get the media’s attention due to the large size of the deal.

For example, a large acquisition was when AT&T purchased Time Warner in 2016 for $85.4 billion.

Another very large acquisition was when Kraft Heinz purchased Unilever in 2017 for $143 billion.

Now that you know what is acquisition in business and how it works, good luck with your research!

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By the way, on this blog, I focus on topics related to starting a business, business contracts, and investing, making money geared to beginners, entrepreneurs, business owners, or anyone eager to learn. 

I started this blog out of my passion to share my knowledge with you in the areas of finance, investing, business, and law, topics that I truly love and have spent decades perfecting.

You may find useful nuggets of wisdom to help you in your entrepreneurship journey and as an investor.

I’d love to share the insider knowledge that I’ve acquired over the years to help you achieve your business and financial goals.

Now, let’s look at a summary of our findings.

What Does Acquisition Mean Overview

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