Definition of acquisition

Acquisition is a transaction aimed at gaining control of a target company by buying all or a majority of its shares. The purchase of 50% of the target company’s stock allows another firm to take it under control.

Such processes are common in business and may occur either at the target company's request or against its wishes. In the first case, when the transaction is approved by the company, it is called a friendly acquisition. However, in the majority of cases, an acquisition is not approved by the company, and it is therefore called a hostile acquisition.

The purpose of acquisition

  • Growing the business: a company takes over young and promising firms that it believes have reached a certain level of development. By doing so, it creates the conditions for generating new revenues as well as further growth and development.
  • Entering other markets: the fastest way to introduce goods and services into other markets including foreign ones is to buy a local company. As a rule, such a company already has experience in the market, as well as a client base, a workforce, and an established reputation
  • Reducing competition: acquiring a competing firm allows a company to limit supply and increase influence over the target market and audience
  • Acquiring new technology: buying a company that has already developed and implemented new technology may be financially and timewise more profitable for a company than conducting its own research and development from scratch

Types of acquisition

  • Horizontal – these deals are between companies from the same sector. For example, a large supermarket chain takes over a smaller one
  • Vertical - deals are made between companies from the same sector, but with different lines of business. For example, an oil company buys a chain of petrol stations
  • Conglomerate – these deals are between representatives of different sectors of the economy. For example, a large bank acquires a taxi service

Example of a major acquisition

October 2015 saw the largest acquisition in the IT sector when Dell Technologies Inc. (NYSE:DELL) bought digital storage giant EMC Corporation for 67 billion USD.