Explain acquisition and its types

Banking & FinanceFinance ManagementGrowth & Empowerment

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.

raja
Published on 13-Jul-2021 12:52:02
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