Definition
It’s the process of a firm or its assets being purchased by another company is referred to as an acquisition. It might take place either through the acquisition of the target company’s assets or its stock. This can happen through a merger, where two businesses come together to become one, or a takeover, where one business takes over management of another.
All steps of acquisitions
Finding the target firm: This entails selecting businesses that align with the purchasing company’s strategic objectives, followed by investigation and evaluation of their financial standing, competitive position, and growth prospects.
Initial Approach: After identifying the target company, the purchasing corporation will normally make an initial approach to determine whether there is interest in an acquisition.
Due Diligence: To confirm the information provided by the company and spot any potential risks or liabilities, a thorough examination of the target company’s financial, legal, and operational records is conducted.
Negiotiating deal: Both parties negotiate the acquisition’s terms, such as the purchase price, payment schedule, and any conditions or contingencies.
Signing agreement: A definitive agreement that specifies the details of the acquisition is signed by both parties after the deal’s parameters have been agreed upon.
Closing: The last step is to complete the transaction by exchanging cash or another form of payment for ownership of the target business and handing over the target business’s assets, liabilities, and staff to the acquiring business.
Integration: In order to achieve the required synergies, the target firm must be fully integrated into the acquiring company. This may entail consolidating operations, systems, and procedures.
Recent examples
Significant acquisitions in the recent past include AT&T’s takeover of Time Warner, Microsoft’s acquisition of LinkedIn, and Amazon’s purchase of Whole Foods.
Biggest acquisition in history
The combination of Exxon and Mobil in 1999, with an estimated value of $276 billion, represents the greatest business transaction in history. ExxonMobil, one of the most integrated oil and gas businesses in the world, was founded as a result of the merger, which at the time represented a significant consolidation of the sector. The acquisition was significant because to its size, complexity, and effect on the world’s energy landscape.
Important Laws and Duties
A variety of laws, notably the Securities and Exchange Commission (SEC) in the United States, control acquisitions. These laws and regulations, which frequently include disclosure requirements, restrictions on the use of insider information, and limitations on the use of proxy voting, must be followed by businesses engaged in acquisitions.
Some important laws:
Disclosure Requirements: Through SEC filings like Form 8-K, publicly traded corporations are required to disclose material developments, including acquisitions.
Tender Offers: By Rule 14d-1 of the Securities Exchange Act of 1934, the SEC governs tender offers, which are offers made by an acquiring business to directly purchase shares from the owners of the target company.
Proxy Solicitations: Rule 14a-9 of the Securities Exchange Act of 1934 governs proxy solicitations, which are communications made by an acquiring firm to the shareholders of the target company asking for their approval of an acquisition.
No Insider Trading: In the context of corporate acquisitions, the SEC enforces insider trading regulations, which forbid those with important non-public information from trading based on that information.
Notification of Federal Trade Comission and Department of Justice: The FTC and DOJ must be notified before an acquisition or merger that exceeds specific size limits can be finalized under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act).
Different Types of Company Acquisitions
Company acquisitions can occur in many ways, such as asset purchases, leveraged buyouts, and friendly and hostile acquisitions.
In a friendly acquisition, the target company agrees to be purchased, whereas in a hostile acquisition, the target company fights the attempt to be acquired.
An asset purchase is purchasing certain assets from the target company rather than the entire company, whereas a leveraged buyout involves funding the acquisition using the target company’s own assets.
What can a company do to prevent acquisitions
Companies can use anti-takeover measures including the issuing of “poison pills” and “golden parachutes,” as well as enhance their financial performance, to prevent acquisition.
Other tactics include expanding the business’s operations, becoming more transparent, and keeping in close contact with shareholders.
Process and Timeline
Depending on the complexity of the transaction and the need for regulatory approval, the acquisition process might last for several months or even years.
Due diligence, negotiations, and closing are often included in the timeframe for an acquisition.
Are acquisitions a problem for society?
There is discussion surrounding how acquisitions affect society. Some contend that mergers and acquisitions can boost productivity and competitiveness, fostering economic expansion and job creation.
Others contend that excessive acquisitions by big businesses might lead to less innovation, less competition, and less consumer choice.