Acquisition Strategies in Business
Understanding When a Company Chooses to Acquire Another Company
Nov 2, 2009
A word that is often used in the business world is “acquisition.” One may see acquisition as just the taking over of another company, but there are many different levels of business that have to be explored when deciding to acquire a sister or similar company. Acquisitions may be used to accelerate the growth of a company and provide for a competitive edge. When owners of a company feel that they are losing their competitive edge against another company in the same industry, an acquisition may be in order.
Reasons for Acquisitions
There are four major reasons why a company may consider to be susceptible to an acquisition. Number one, the owners die or have health problems and there is no one else to take over the business. Two, the internal revenue is not being generated enough to keep up with competition. Three, the company may decide to acquire to spark industry change and put themselves in a profitable position in the future. Four, the industry is rapidly consolidating and they may have rapidly acquired businesses but the results from those acquisitions were not in their favor (Source Companies, 2006). In any one of the scenarios, the company is always trying to better themselves.
Downsides
Although acquisitions may be beneficial for a company, there are downsides that must be considered. Each company is different in its own way and the acquirers must learn this, however, this is not always that case. “Companies overpay, improperly finance or don't properly gauge the managerial or human resource capabilities of the target company” (Source Companies, 2006).
In order for an acquisition to work, the acquiring company must have a good understanding of how the target company has operated and how it operates currently. Instead of taking over and changing everything, the strategies of the acquiring company should be integrated slowly for a smooth transition.
Three Strategies
In the three strategies for growing business, there are threats that have to be considered. In going public through an IPO, the company goes under more scrutiny from SEC organization and SOX regulations and is more susceptible to take over. When it comes to a merger, there are new regulations that might not be favorable, more taxation and battles between pricing may occur. Finally, with acquisitions, we have discussed it previously in this segment. With any option that a business decides to venture on, there will be risks and advantages to each.
References
Source Companies. (2006). Acquiring Companies.
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