Types of Acquisition Processes and How They Work

Businesses are constantly in the process of navigating and managing growth. Questions arise concerning how to thoughtfully grow their client base sustainably, remove competition, or work with or take over former competitors. In all these cases, the concept of growth plays a role in a businesses’ short-term and long-term decisions. Acquisitions are one way for businesses to grow.

Key Points:

• What are the different types of business acquisitions?
• Why am I looking to merge or acquire a business?
• What advantages can expanding my business provide me with?
• Am I in a suitable financial position to acquire a new business?

6 Well Known Mergers and Acquisitions: Examples of Successes and Failures

Most Americans are somewhat familiar with mergers and acquisitions. Typically, the news or social media will announce an acquisition. Some acquisitions are of larger companies taking over smaller ones, or sometimes an acquisition is a collaborative effort.

Readers may be familiar with a few notable acquisitions that include when Google acquired Android or Salesforce acquired Slack. Corporations may make these purchases in many ways, including business acquisition loans using cash and equity to buy another company. But acquisitions aren’t limited to larger businesses. Smaller businesses may also choose to merge or acquire another one to strengthen their position in the marketplace.

There are several advantages that a business may experience when acquiring another business, and often a business will take out a business acquisition loan to facilitate its purchase. There are numerous pitfalls to watch out for and there are a number of notable acquisitions that weren’t successful.

Here are some key pitfalls:

•  Kmart and Sears are both struggling to survive in a changing retail space. 
• eBay and Skype are a weird combination of businesses. 
• Quaker Oats and Snapple are food products, but there were numerous challenges with this acquisition that eventually caused it to fail.  

Here are some examples of successful mergers or acquisitions:

• Disney and Pixar/Marvel audiences worldwide continue to be entertained by the wonderful projects generated by these teams. 
• Meta, formally known as Facebook, purchased Instagram. While there have been some complaints about the user experience on Instagram in recent years, it’s undisputed that this was a smart purchase at the time. 
• Sirius and XM Radio joined forces and created the listening experience most drivers love for short and long road trips. 

Advantages and Disadvantages of Business Acquisitions

Here are some factors that could help your business soar:

Pros

•  If you’re merging with a company that compliments your business services, this could expand your client base and make it easier for your company to produce the goods and services they’re known for. 
•  If both companies are well known in a specific area, the clientele of both companies may influence whether or not the merger is successful. Client enthusiasm can make or break a deal. 
• Collaborate with new teams that may offer a deeper insight into each product and the different systems that govern the business. 
•  Expand the market where a product is being sold. 
• A company may have the opportunity to work with another business in distress at a lower investment cost. See buying a failing business for further details. 

Here are some pitfalls to avoid:

Cons

• Some mergers don’t work because, ultimately, the products are a mismatch and are incompatible. 
• Underestimating the impact of internal teams and how they influence business systems, innovation, and willingness to try something new can cause a business to fail. Teams can often make or break a business. 
• Customer confusion could potentially impact sales. If a customer is unclear why a merger or acquisition is happening, a business may inadvertently be pushing the customer away. 
• Accidentally overpaying for acquisition and eventually needing to sell that acquisition at a loss is a clear failure.  

The mergers and acquisition process can seem like a puzzle and may take years to discern if it was a successful move.

7 Types of Acquisitions

There are a few types of acquisitions, and it’s important to know which makes the most sense for your company.

•  Conglomerate Acquisition Type - there are times when a company may look to merge with another company in a completely different industry. This type of merger aims to balance out a business model and hopefully begin diversifying revenue being created by the company. 
• Most people are familiar with the adage “Don’t have your eggs all in one basket” The idea is that if you drop the basket, all of the eggs might break. In business, the idea of a conglomerate is to recalibrate exposure to different industries. With this acquisition approach, the goal is to hopefully minimize the financial exposure and risks that a company has when positioned in just one industry.
• Congeneric Acquisition Type - this type of business acquisition can be incredibly advantageous to the companies impacted by this type of merger. In this case, companies in the same industry but producing different products and services will merge. 
• Vertical Acquisition - in a vertical merger, companies in the same industry that work in different aspects of product production will merge with the end goal of streamlining systems and hopefully become known in the market as “the” place to go to for the product or service being produced. 
• Horizontal Acquisition - two companies making the same type of product will merge. This type of merger creates a larger share of the market. 
• A friendly Takeover occurs when another business expresses interest in taking over a company, and the company is receptive and welcoming to the takeover bid. 
• Hostile Takeover - occurs when a company’s management, including the Board of Directors or senior leadership, is not receptive to a takeover bid. In many cases, a company may present this type of bid to stockholders who may be receptive to the bid and move to replace those in management positions. 
• Reverse Takeover - many of us are used to hearing about businesses “going public” and raising money through the IPO or “Initial Public Offering” process. When a company goes through the IPO process, they allow investors to purchase stock in what was previously a private company, thus making it “public.” 
• In a reverse takeover process, a company will instead purchase the stock of a publicly-traded company. The goal is to purchase enough stock to have a controlling amount of shares.

There are several different approaches to growing a business. Before beginning the acquisition process, a company needs to consider which approach makes the most sense for their organization and their financial bottom line. You may also wish to research merger vs acquisition before forming any conclusions.