What is an Acquisition?
An Acquisition is a corporate transaction in which one company purchases a controlling interest in another company’s shares or assets to gain operational, strategic, or financial control.
Definition
An Acquisition occurs when a buyer obtains more than 50% ownership of a target company, giving the acquirer authority over key business decisions.
Key Takeaways
- Grants the acquirer control of the target company.
- Can be friendly or hostile.
- Used to achieve growth, market expansion, or synergies.
- Often part of broader Mergers & Acquisitions (M&A) strategies.
- May involve stock purchases, asset purchases, or tender offers.
Understanding Acquisitions
Acquisitions allow companies to accelerate growth, diversify portfolios, expand into new markets, or acquire valuable assets such as technology, patents, or customer bases.
They may be initiated through negotiation (friendly acquisition) or through a takeover attempt not approved by management (hostile acquisition).
Acquisitions are typically evaluated using valuation methods such as DCF, comparables, or precedent transactions.
Formula (If Applicable)
While there is no single acquisition formula, Goodwill is often calculated:
Goodwill = Purchase Price − Fair Value of Net Identifiable Assets
This represents the premium paid for intangible benefits like brand value, customer loyalty, or synergies.
Real-World Example
Microsoft’s acquisition of LinkedIn for $26.2 billion expanded its enterprise ecosystem. Facebook’s acquisition of Instagram strengthened its social media dominance.
Importance in Business or Economics
- Enables rapid expansion and market penetration.
- Helps acquire technology, talent, or intellectual property.
- Can eliminate competition.
- Impacts GDP and market structure at macroeconomic levels.
Types or Variations
- Horizontal Acquisition – acquiring a competitor.
- Vertical Acquisition – buying a supplier or distributor.
- Conglomerate Acquisition – unrelated industry purchase.
- Asset Acquisition – purchasing assets instead of stock.
Related Terms
- Mergers & Acquisitions (M&A)
- Goodwill
- Synergy
- Tender Offer
- Takeover
Sources and Further Reading
- Harvard Business Review – M&A Strategy
- McKinsey – Value Creation in Acquisitions
- Investopedia – Acquisition Overview
- Corporate Finance Institute – M&A Fundamentals
Quick Reference
- Purpose: Growth, synergy, competitive advantage.
- Control: Typically >50% ownership.
- Key Focus: Valuation, negotiation, integration.
- Outcome: Expanded capabilities or market position.
Frequently Asked Questions (FAQs)
Is an acquisition the same as a merger?
Is an acquisition the same as a merger?
No—acquisitions involve control; mergers combine entities.
What is a hostile acquisition?
A takeover attempt without management approval.
Why do companies pursue acquisitions?
To grow quickly, gain market power, or acquire strategic assets.
What risks are involved?
Integration challenges, cultural mismatch, overvaluation.
