In business, acquisition refers to a business transaction that occurs when one company buys and takes control of another. These transactions are an essential part of mergers and acquisitions (M&A); It is a well-known course in corporate law or finance, focusing on the buying, selling and consolidation of companies.
The term acquisition is sometimes used synonymously with merger, but technically the two words have different meanings. In the acquisition, the two companies continue to operate as separate legal entities.
On the other hand, a merger occurs when two existing companies unite to form a new legal entity. A well-known example is the merger of Exxon and Mobil together to form ExxonMobil in 1999, or the merger of Price Waterhouse with Coopers and Lybrand to form the PricewaterhouseCoopers (PwC) service network in 1998.
Concept of acquisition in business
In business, an acquisition concept occurs when one company (the buyer) buys most or all of the shares in another company (the target); to assume control of its assets and operations.
Acquisitions are often amicable; This means that the two companies agree on the terms of the deal and are negotiating it. However, the word “acquisition” is sometimes used interchangeably with the word “takeover,” which can be hostile.
In other words: one company may take control of another company – or acquire it – by purchasing a majority stake, against the wishes of the target company’s board or management.
Acquisitions are often coordinated by investment bankers or lawyers.
Large companies, including private equity firms, often have in-house teams running the operation. This is the concept of acquisition in business.
Types of acquisitions
Since we are talking about the concept of acquisition in business, it is worth pointing out that companies come together for a variety of reasons, and in many ways. In Entrepreneurship KSA we explain the most common types of acquisitions, as follows:
A horizontal acquisition, an essential component of the acquisition concept in business, occurs when a company buys another company that offers similar products or services. The new combined entity may be in a better competitive position due to increased market share or scalability than the standalone companies combined to form it. So for example: if one broadcast network were to buy another broadcast network, that would be considered a horizontal acquisition.
Examples of this type of acquisition: Facebook’s acquisition of Instagram for $1 billion in 2012, and Verizon Wireless’ acquisition of British telecom company Vodafone for $130 billion in cash and stock in 2013.
Marriott International formed the largest hotel chain in the world when it acquired Starwood Hotels and Resorts International for $13 billion in 2016. This is some of what can be mentioned when talking about a horizontal takeover in business.
A vertical acquisition occurs when a company buys another company that produces a product in its existing supply chain. So, for example, if a broadcast network buys a movie or TV production company, that would be considered a vertical acquisition, or when if a manufacturing company purchases a product that is partly developed, and then continues to build that product before selling it.
Examples include the Swedish furniture company Ikea’s ongoing purchase of acres of forest, as well as CVS Health Corporation’s $69 billion purchase of Aetna in 2018.
Among them is the purchase of Amazon, the giant online retail company, Whole Foods Market, for $13.7 billion in 2017.
Congeneric or concentric acquisition
A congeneric or concentric acquisition occurs when one company buys another company that offers different products or services but meets the needs of the same customer base. It is where the acquiring company and the target company are in the same or related industry but have different business lines or products. The two companies involved in a congeneric acquisition may share similar production processes, distribution channels, marketing, or technology. So if a broadcast network were to buy a smart TV manufacturer, it would be considered a congeneric acquisition.
Examples include consumer goods giant Procter & Gamble’s acquisition of shaver and battery company Gillette for $57 billion in 2005, as well as Coca-Cola’s acquisition of Glaceau; The company that manufactures vitamin water, for $4.1 billion in 2007.
It’s the kind that happens when one company buys another from an entirely separate industry. A conglomerate acquisition is a merger of firms that are involved in economically unrelated business activities. Conglomerate acquisitions range from short-term joint ventures to complete mergers. The firms can belong to different industries or different geographic areas. So if a broadcast network buys a crayon company, that would be considered a conglomerate acquisition.
Examples: Microsoft’s acquisition of LinkedIn for $26.2 billion in 2016, as well as the multinational holding company Berkshire Hathaway’s acquisition of Heinz for $23.3 billion in 2013.