Acquisition
An acquisition is slightly different from a merger. Unlike all mergers, all acquisitions involve one company purchasing another - there is no exchange of stock or consolidation as a new company. One company can buy another company with cash, stock or a combination of the two.
Acquisition is likely to be friendly or hostile. In a hostile acquisition, the company, which is to be bought has no information about the acquisition and is taken by surprise. Usually, a company acquires another company against the wishes of the company being acquired. In a friendly acquisition, the companies cooperate with each other and go ahead with acquisitions. In acquisition, normally a larger company buys a smaller company. In some cases the minor company will acquire managing power of a larger company and retain the larger company's name. This is also well-known as reverse takeover.
Following are the types of acquisitions:
- Asset deals: Under an asset deal, specific assets of a business are acquired to either wrap up its affairs or continue with another business opportunity.
- Stock deals: Under a stock deal, instead of purchasing specific assets of the selling company, the stock or equity of the selling company is purchased at fair market value with all assets being acquired along with all their liabilities. The acquired company usually survives as a legal entity and continues to operate as subsidiary of the acquiring company.
The advantages of acquisition are as follows:
- It provides a high speed access to resources.
- It avoids barrier to entry.
- It involves less reaction from competitors.
- It can also block the competitor.
- It provides an asset evaluation.