Acquisition is a trait of corporate finance and management. Acquisition deals with the dividing, selling, combining and buying of different businesses. Acquisition process can also entail restructuring of organizations so as to realize a positive growth. The difference between merger and acquisition is not always clear to many. However, in the case of a merger, two different businesses consolidate to form one entity. In the case of acquisition, one business decides and takes over another and completely becomes the new owner. This article discusses one of the major reasons of acquisition as well as one of the least reasons for the acquisition. The paper gives examples, in each case, in the real world.
Reasons for Acquisition
The major reason for a company to undergo acquisition is to increase the market share. Increasing market share is also known as gaining competitive advantage. A company may decide to purchase another company so as to absorb the company’s customers. Once, a company acquires another company, competition between them that could have been there is done away with. A company may also one to establish itself in newer markets, instead of starting from zero; the company may opt to acquire another company that already exists in the new market. Since companies have different distribution and network systems, when one company acquires another, the customer base with automatically become larger. (Gaughan, 2010) To increase market share has been seen as the reason most companies acquire others.
A good example of a company that acquired another so as to widen the market share is Takeda Pharmaceuticals. Takeda Pharmaceuticals is a Japan-based pharmaceutical company. Takeda purchased Nycomed Company. Nycomed Company is a Switzerland-based pharmaceutical company. The Nycomed Company was purchased at US $ 13.6 billion. The Takeda Company saw the need to expand its customer base in Europe. Instead of just starting from zero and setting a branch in Switzerland, the company decided to purchase the other company so as to absorb the other company’s customers.
The least reason for a company to undergo acquisition is to survive. Most companies are often faced with challenges that threaten their survival. To most companies the only option is to be purchased by another company. This will enable another company to take full identity of the company and solve the challenges that present themselves. (Weber, 2013)
There are several companies that have been acquired by other companies so as to survive. A good example is the PayPal Company. The PayPal Company, at the time of establishment, was a cryptography company and not an online payment service as it is. From 1998 to 2002, the company was facing various challenges that were threatening its survival. It was later purchased by eBay for $ 1.5 billion in 2002 and since then it has found its soft spot as the preferred online money payment system.
In as much as acquisition may have several benefits, it is important for a company to consider many factors before acquiring another company or before being acquired by another company. A company that wants to acquire another or that is to be acquired should be able to have a well-defined reason as to why it is doing so. The company should make sure that its cultures and those of the other company can mesh. Companies should seek both the legal and accounting advice. The legal advice is necessary for understanding the laws that govern the acquisition. The accounting office will help in costing the deal. Gaughan, (2010)
Patrick A. Gaughan, (2010). Mergers, Acquisitions and Corporate Restructuring. WILEY Publishers.
Yaakov Weber, (2013). A Comprehensive Guide to Mergers & Acquisitions. FT Press.