What is acquisition: Types, Methods & Impact on Business Growth

What is acquisition? Acquisition is a business strategy wherein one firm buys a controlling interest or shares of another firm to grow. Compared to a merger, in an acquisition, there exists both a buyer and a target firm. Firms go for acquisition to expand into new markets, to get access to specific technology and expertise, to increase customer base, and so on. But an acquisition is successful not just because the deal is completed; rather, integration and creation of synergies play an important role in the success of acquisitions. By understanding what acquisition is, what its types and ways are, and how it affects business expansion, it becomes easy to understand the reason behind this business strategy. The following sections of the blog will deal with all these issues.

Key Takeaways

• Acquisition helps companies take control, grow, and enhance their presence in the market.
• The reason why companies acquire companies is to get into the market, technology, skills, and customers.
• There are four types of acquisitions that help achieve various business goals.
• These are vertical, horizontal, conglomerate, and congeneric acquisitions.
• Acquisition enables companies to grow faster through the development of strengths.

What Is Acquisition and How Does It Work in Business?

An acquisition is a business deal where a company buys either a majority or even the total of the shares or assets of another firm in order to control it. An acquisition can occur either with the consent of the target firm or without, based on the type and nature of the acquisition. In the process of negotiating and acquiring the deal, there might be a no-shop clause limiting the target firm from looking for other potential buyers.

Acquisitions of big and recognisable firms might generate a lot of interest from the media, but mergers and acquisitions (M&A) are common practices for small to medium-sized firms too. Companies make acquisitions in order to enter new markets, access technology, grow in market share, and so forth.

What Are the Different Types of Acquisition? 

Acquisitions may be grouped depending on how the business that makes the acquisition is related to the target business. The four common types of acquisition include:

• Vertical Acquisition: This type of acquisition takes place when a business acquires another business operating at a different level in the supply chain for that particular business. The business being acquired may be either an upstream business or a downstream business.
• Horizontal Acquisition: Here, a business acquires another business that is its competitor in terms of operating in the same industry as well as having a similar supply chain level.
• Conglomerate Acquisition: This is where a business acquires another business that operates in an entirely different industry.
• Congeneric Acquisition: Congeneric acquisition involves acquiring a company in a related industry that offers different but complementary products or services, often sharing similar markets, technologies, or distribution channels. 

Such acquisitions help businesses grow and diversify.

How Does Acquisition Impact Business Growth?

Acquisition can help companies grow faster by providing the opportunity to venture into new markets, obtain new capabilities, increase the customer base, and enhance competitive positioning. 

Some recent trends in the IT industry of India highlight the way that companies are now making use of acquisitions in order to cope with market changes.

• In this regard, companies are opting for acquisitions in order to get domain knowledge, digital engineering expertise, and specialised platforms, instead of creating such capabilities.
• Some examples of recent acquisitions include TCS's $700 million acquisition of Coastal Cloud, Coforge's $2.35 billion acquisition of Encora, and Wipro's $375 million acquisition of Harman DTS.
• Nevertheless, not all acquisitions provide the opportunity for fast growth. It is possible to achieve long-term growth from acquisitions through effective integration of new skills and synergy realisation.

Conclusion

The acquisition process offers companies an opportunity to take control, enter new markets, obtain expertise, and improve competitiveness. There are different kinds of acquisitions which have different objectives, and successful integration depends on the realisation of those objectives. Though acquisition is a way to promote growth in a business organisation, the company should assess its acquisition targets.