Acquisition is a widely popular way to grow a business. It can also be helpful in minimizing retaliation from existing companies, when it comes to targeting new markets. Typically, acquisition implies to taking something to gain its benefits or generate value from it. Previously, Anand Jayapalan had spoken about how in the world of business, acquisition involves buying a large portion of the shares of a target company to gain its control. The acquirer in this situation can be an individual, a company, or a government. As a part of the purchase agreement, the acquirer is likely to buy company shares and other assets. This allows the acquirer to make decisions in regard to the business assets; even without needing the approval of the other target company’s other shareholders. Acquisitions can take a long time, typically ranging from a couple of months to a year.
The goal of an acquisition tends to be to gain control of the operations of the target company, including its assets, production facilities, resources, market share, customer base, and so on. There are many reasons why a business may choose to acquire another company. Some may want to seek greater market share and benefit from economies of scale, while many others may want to diversify their product range and enjoy increased synergy. Certain companies might even acquire another business to just cut out the competition.
Here are some of the key reasons for business acquisitions:
- Venturing into a new or international market: If a company has plans to expand its operations to a different country or an entirely unfamiliar market, opting to acquire an existing business in that specific locale can be the most straightforward solution to achieve this goal. Acquiring an established business provides the advantage of inheriting an existing workforce, a recognized brand name, and other intangible assets. This helps in making sure that the entering company initiates its foray into a new market with a robust foundation.
- Strategic expansion: There are many situations where a business may experience certain physical or logistical constraints, or its resources may get severely depleted. In this situation, it would be a good idea to acquire promising, emerging enterprises and seamlessly integrate into its revenue stream. Doing so can provide a business with a good way to generate profits.
- Mitigating excess capacity and reducing competition: In scenarios where excessive competition or supply poses challenges, companies may opt for acquisitions as a strategy to alleviate excess capacity, eliminate competitors, and concentrate on the most efficient providers. Regulatory bodies tend to closely monitor transactions that could impact the market.
- Acquiring advanced technology: At times, it can be more economically viable for a company to acquire another entity that has already successfully implemented a cutting-edge technology, rather than investing the time and resources required to develop the technology internally.
Earlier, Anand Jayapalan had pointed out that acquisitions are generally friendly endeavours. They tend to occur when the target firm agrees to be acquired, which means its board of directors approves of the deal. Friendly acquisitions commonly work toward the mutual benefit of the acquiring and target companies. Both companies develop strategies to make sure that the acquiring company buys the appropriate assets, as well as review the financial statements and valuations for any obligations that are likely to come with the assets.
