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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.