What is an acquisition?
An article inspired by a recent educational pursuit on CorporateFinanceInstitute.com.
An acquisition is defined as a transaction between two corporations where one company purchases a portion or all of another company’s assets or stock. These are typically made to take control of and expand the target’s strengths to bring about growth and synergy. Mergers are considered one type of acquisition, and they are typically used interchangeably; however, there are actually two additional types of acquisitions that are important to note as they will structure the difference in the type of transaction.
Acquisitions as a standalone transaction allow for both companies to retain their company status as separate legal entities. One company simply becomes the parent company of the other. An example of this type of transaction is popular with the well-known giant, Berkshire Hathaway. They have reached conglomerate status by acquiring large brands such as GEICO, Benjamin Moore Paint Co., Helzberg Diamonds, and Fruit of the Loom. But, as you well know, each of these companies still exists as standalone entities with their own branding and identities.
Mergers result in only one company surviving the transaction. The sole intent of this type of structure is to take one company and dissolve it into another for reasons of intellectual property, market share, or simply growth and expansion. A famous example of this type of transaction was when Hewlett-Packard (commonly known as HP) purchased Compaq.
Amalgamations are a lesser-known form of acquisitions, in which neither company survives the transaction, and instead, new branding and identity emerge. One of the most recent examples of this is when Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited.
Acquisitions are performed to truly take advantage of one of the following possibilities:
- Reduced barriers to entry into new markets or product lines
- Market power and market share
- New competencies and resources, such as intellectual property, machinery, technology
- or people.
- Access to experts already operating successfully in this field
- Access to additional capital
- New perspectives and ideas
There are definitely additional items to consider when an acquisition is on the table, as many individuals become concerned with things such as culture clashes or conflicting goals and ideals for the new entity as it is formed. It is important that both sides of the transaction act in transparency and open communication so that the end result is best for both parties. Transworld Business Advisors of Indiana is trained to seek out the answers to the questions that will result in “all the cards being on the table” for their client as they advise in the process.
To learn if this is the right next step for your business, consult with Transworld Business Advisors of Indiana today by clicking here.