Explain acquisition and its types

Acquisition means one company takes control over another company by acquiring more than 50% of shares of the targeted company. Some of the reasons for acquisition are increased market share, diversification, cost reductions, etc.

Acquisition structure is the organized framework for acquisition of a company. It considers both cash and non-cash (earn outs, equity rolled, take backs etc.).

There are 3 types in acquisition structure, which is as follows −

• Stock purchase − Buys stocks from targeted companies' stockholders.
• Asset purchases − Buys only assets and liabilities mentioned in agreement.
• Merger.

Purpose

Listed below are the purposes for an acquisition −

• Improve performance.
• Increase production by technology.
• Acquisition at early stages helps the company.

Types of acquisition

The types of acquisition are as follows −

• Vertical acquisition
  Acquisition is done either by backward or forward integration to complete its activity cycle
  Example − Target Corporation (USA) This is a manufacturing unit, distribution, wholesale, retail stores.

• Horizontal acquisition
  Acquiring its competition company in a similar sector/business.
  Example − Whatsapp acquired by Facebook. Both the companies are in social media.

• Conglomerate acquisition
  Company acquires another company in a different sector/industry.
  Example − Reliance industry acquired Hamleys, which is a British toy product company.

• Congeneric acquisition
  When one company is acquiring another company, which are in same product line,
  Example − Citicorp and travelers group. Citicorp is in banking and credit card services, while, travelers group is in insurance and brokerage services.