Acquisition

Definition§

An acquisition refers to the process where one company purchases most or all of another company’s shares to gain control over that company. Acquisitions can be friendly, where both companies agree to the terms, or hostile, where the target company does not want to be purchased. This strategic move helps companies grow their market share, diversify their offerings, or achieve other business objectives.

Examples§

1. Facebook and Instagram (2012): Facebook acquired Instagram for approximately $1 billion in cash and stock. This acquisition helped Facebook to expand its footprint in the photo-sharing and social media space.

2. Amazon and Whole Foods (2017): Amazon acquired Whole Foods for $13.7 billion, enabling it to enter the grocery and high-end food markets, while leveraging Whole Foods’ retail footprint.

Frequently Asked Questions (FAQs)§

Q1: What is the difference between an acquisition and a merger?

• A1: An acquisition involves one company taking over another, while a merger is a blend of two companies into a new entity.

Q2: What are the primary motives behind acquisitions?

• A2: Motives include expanding market share, gaining new technology or products, removing competition, and achieving economies of scale.

Q3: What is a hostile acquisition?

• A3: A hostile acquisition occurs when the target company’s board of directors resists the acquisition, and the acquiring company directly approaches the shareholders.

Q4: How do acquisitions affect shareholders?

• A4: Shareholders of the target company usually receive a premium on their shares, but the overall impact depends on the specifics of the acquisition deal.

Related Terms§

• Merger: A combination of two companies where both entities cease to exist independently to form a new, combined organization.
• Pooling of Interests: An accounting method used in mergers and acquisitions where the balance sheets of the combining companies are combined.
• Takeover: Another term for acquisition, where one company gains control over another.

Online References§

• Investopedia - Acquisition
• Harvard Business Review - The Big Idea: The New M&A Playbook

Suggested Books for Further Studies§

1. “Mergers, Acquisitions, and Other Restructuring Activities” by Donald DePamphilis: This book offers detailed insights into the M&A process, strategies, and financial considerations.
2. “The Art of M&A Strategy: A Guide to Building Your Company’s Future through Mergers, Acquisitions, and Divestitures” by Kenneth Smith and Alexandra Reed Lajoux: A comprehensive guide to understanding and executing successful M&A strategies.
3. “Valuation: Measuring and Managing the Value of Companies” by McKinsey & Company Inc.: Provides in-depth knowledge on valuation techniques crucial for acquisition deals.

Fundamentals of Acquisition: Corporate Finance Basics Quiz§

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