What Does Acquisition Mean in simple terms?
How does an acquisition work in business?
What are the essential elements you should know!
In this article, I will break down the meaning of What Does Acquisition Mean so you know all there is to know about it!
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.
How do you define an acquisition?
An acquisition can be defined as follows:
In business, an acquisition is when a company (acquiring company) purchases a controlling interest in another existing company (target company)
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.
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
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
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?
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.
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.
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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What Does Acquisition Mean Overview
If you enjoyed this article on What Is An Acquisition in business, I recommend you look into the following terms and concepts. Enjoy!
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