What Does Acquisition Mean?

Acquisition is a business deal through which a firm acquires another firm, or an asset, or majority ownership of another business firm. This may be a business that operates as an independent unit, merges with the purchasing business, or integrates its products, technology, customers, and staff into the purchasing firm.

There can be many different reasons for a company to buy out another business. They may want to realize economies of scale, diversify, increase their market share, increase synergy, reduce costs, or provide new niche products. Or they just want to eliminate the competition.

Friendly acquisitions involve friendly deals. These happen when the target firm is willing to be acquired. The board of directors of that firm supports the acquisition. Friendly acquisitions tend to benefit both the acquirer and the target firms.

Types of Acquisitions

• Horizontal acquisition: Acquiring a competing firm in the same industry to increase market share.
• Vertical acquisition: Acquiring a distributor or a supplier to gain control over the supply chain.
• Conglomerate acquisition: Acquiring a firm in an industry that is not related to the company to gain diversified revenues.
• Acquihire: Acquiring a company solely for its talent but not for its products or services.

The importance of acquisitions

• Faster growth: Purchasing an already existing firm with revenues, clients, or technology can be faster than developing the same things internally.
• Market expansion: Acquisitions give an opportunity to get access to new markets, customer segments, or new types of products.

Competitive advantage: Eliminating a competitor or acquiring proprietary technology will improve the competitive position of a firm.

Cost savings: Combining the processes of two firms creates economies of scale and cost savings through combined resource use.

Financial and tax implications: Acquisitions have a huge amount of accounting and tax consequences, including proper purchase price allocation and goodwill recognition.

Growing businesses need to carefully consider not only the transaction itself when they are conducting an acquisition but all the financial aspects as well.

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