DEFINITION of Acquisition
It is when one company decides to take over another one. The acquiring company does this when purchasing the major. Or even the whole stake of the company which is being taken over.
We can recognize two types of acquisition: hostile and friendly. A hostile takeover represents situation when a company is purchased by another. And without owners acceptance or agreement. It happens when the buying company buys a majority amount of shares to get a controlling stake.
When both companies agree to the terms of the acquisition, it is referred to as a friendly takeover.
WHAT IT IS IN ESSENCE
Some company usually make acquisitions as part of its own growth strategy. The targeted company has something that the buying company wants. But cannot or does not wish to develop in the given time. They can make it in exchange for cash, stock in the buying company, or a mixture of the two.
The business acquisition is the process of acquiring a company to build on strengths or weaknesses of the acquiring company. A merger is similar to an acquisition. But it refers more strictly to combining all of the interests of both companies into a stronger single company.
The end result is to grow the business. In a quicker and more profitable manner than normal organic growth would allow.
Say both companies recognize the common benefit in integrating forces. But they wish to come together as equals, it refers to as a merger.
HOW TO USE
This synergy, the idea that the two companies together are more valuable to the shareholders than they are apart, is elusive. But it is the idea used to justify most acquisitions.
A well-executed acquisition can be the crowning jewel of a CEO’s career. Knowing how to analyze acquisitions can put individual investors in a great position to profit. All from the stock price fluctuations that accompany them.
Traders will often refer to both under the same term: mergers and acquisitions, or M&A (Mergers and acquisitions) for short.