What are the advantages and disadvantages of acquisition?

Acquisition is the process of acquiring one or more companies by acquirer without affecting the acquirer brand name or autonomy. The targeted company or companies will exist and continue their operations but they have to work under acquirer name and their terms. This ownership change takes place.

The main objective of acquisition is to improve present performances, decrease the competition in the market, to gain technology and expertise and economic scale.

The purpose and classification is based on involved companies and reasons may not be the same because companies at times don’t make them public due to different reasons.

Types

There are different types of acquisitions and the type chosen according to their business needs. These types of acquisitions are explained below −

• Horizontal acquisition − If one company acquires, another company in the same industry or business line or their competitor is called horizontal acquisition.

• Vertical acquisition − If one company acquires another company, who are the suppliers or distributors of their products is called vertical acquisition.

• Conglomerate acquisition − If one company acquires another company in a different sector or in different industry to diversify (to explore different sectors) is called conglomerate acquisition.

• Congeneric acquisition − If one company acquires another company who are having similar technology, distribution line or similar production is called congeneric acquisition.

Advantages

The advantages of acquisition are as follows −

• New markets and product lines.
• Increase in market share.
• Growth in revenues.
• Can withstand economic slump.
• Access to specialists.
• Capital gain.
• New ideas.

Disadvantages

The disadvantages of acquisition are as follows −

• Culture conflicts between two companies.
• Job cuts/ increase in unemployment.
• Clash between objectives between companies.
• Low productivity.
• Employee morale may decrease.
• Choosing the right company to acquire, otherwise it may damage the productive company.
• Brand value can be damaged.
• Production problems.