Explain the concept of takeover in business

Takeover is the process of acquiring a control over another business unit by controlling their assets, either directly or indirectly.

Generally, takeovers are done by either hostile or friendly approach. They are common in larger business units and help the external growth of a business.

Reasons

The reasons for a takeover in a business are as follows −

• Market share.
• Increase intangible assets.
• Diversification.
• Decrease competition.

Types

The types of takeovers are as follows −

• Friendly takeover − Takeover is done after negotiations and agreements.

• Hostile takeover − Takeover is done by buying the required number of shares in a targeted company in an open market.

• Bailout takeover − Takeover is done by acquiring the shares by rehabilitation scheme (financial institution) in financially sick companies.

• Reverse takeover − In this type, a private company acquires the public company.

• Backflip takeover − Here, the acquiring company gets the subsidiary status.

Advantages

The advantages of a takeover are as follows −

• Revenue increases.
• Increase in brand value.
• Strategic expansion.
• Cost reduction.

Disadvantages

The disadvantages of a takeover are as follow −

• Intangible assets may decrease.
• Unemployment.
• Balancing between two company cultures.
• Adjustment with new management.

Failure reasons

The reasons for a failure in regards to takeover are as follows −

• Over estimation.
• Process is not properly handled.
• Competitors may gain their market share.